Homework: Chapter 1 Homework Save Score: 0 of 1 pt 90f 10 (6 complete) 1 HW Scor

Question

Homework: Chapter 1 Homework Save Score: 0 of 1 pt 90f 10 (6 complete) 1 HW Score: 60%, 6 of 1. P1-9 (similar to) E Question Help Interest versus dividend income Last year, Shering Corporation had pretax eanings from operations of $484,000. In addition, Manufacturing and received $27,000 in income from dividends on its 4% common stock holding in T Industries, Inc. Shering is in the 24% tax bracket and is eligible for a 5% dividend exclusion on its Tank it received $27,000 in income from interest on bonds it held in Zig ank Industries stock. a. Calculate the firm's tax on its operating earnings only b. Find the tax and the after-tax amount attributable to the interestincome from Zig Manufacturing bonds c. Find the tax and the after-tax amount attributable to the dividend income from the Tank Industries, Inc., common stock. d. Compare, contrast, and discuss the after-tax amounts resulting from the interest income and dividend income calculated in parts b. and c. e. What is the firm's total tax liability for the year? a. The tax on operating earnings is $(Round to the nearest dollar.)

Explanation / Answer

1:Tax on operating income = 484000*24% =116160

2: Tax on interest income = 27000*24%= 6480

After-tax interest = 27000-6480 = 20520

3: Tax on dividend= 24%*(27000*(1-0.05)) = 6156

After tax dividend= 27000-6156 = 20844

4: The tax on dividend is lower than tax on interest due to the 5% exclusion which reduces the tax impact.

5: Total tax= 116160+6480+6156= 128796

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