OK here comes the big word problem! IMTU Corporation (it stand for \" Made This
ID: 2774976 • Letter: O
Question
OK here comes the big word problem!
IMTU Corporation (it stand for " Made This Up") had sales last year of $1,000,000. They sell heat shields to place on your lap for stupid McD's customers who insist on placing a cup of hot coffee between their legs. The materials cost $80,000 (that's good) but the labor to put them together costs $750,000 (yes they are union and yes the company is looking to move this operation "off-shore" next year but that's beyond the scope of this course). Advertising was just $50,000, as they mostly use word-of-mouth. They did need to raise some money this year. The bank loaned them $150,000 at 8% (that interest is due this year). The interest didn't worry them too much as it was partly off-set by the dividend check they received from McDonalds for $8,000 (hmmmmm - I wonder if there is a conflict of interest here?) Anyway, all things considered, "it was a very good year" so much so they paid their loyal shareholders $50,000 in common stock dividends. OK, given all that, what was their Federal tax bill? NOTE: you MUST show (type in) all work. Label each line item and indicate clearly what your final answer is. VERY FEW points if all you show me is just your final answer.
Explanation / Answer
Working notes:
1. Interest expense = $150,000 x 8% = $12,000
2. Since tax rate is not mentioned, it has been calculated as the balancing figure (Total comprehensive income - Net income)
3. In computing so, it has been assumed (in absence to any information to the contrary) that dividend payout ratio is 100%, that is, entire net income was distributed as dividends.
$ Sales 10,00,000 Less: Cost of Goods Sold Materials 80,000 Labor 750000 Total COGS 8,30,000 Gross Profit 1,70,000 Less: Advertising Expense 50,000 Interest Expense 12,000 Operating Income 1,08,000 Other Income (Dividend) 8,000 Total Comprehensive Income 1,16,000 Less: Tax Paid (Balancing figure) 66,000 Net Income* 50,000 *All Net Income paid out as dividendRelated Questions
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