Final Project Milestone Two

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Gusii Institute of Technology, Kisii *

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1105

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Finance

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Nov 24, 2024

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1 Final Project Milestone Two: Income Taxes and Pensions Institutional Affiliations Student’s Name Course Details Submission Date

2 IV. Income taxes Question A In case congress decides to abolish the corporate taxes, then the profit available in the income statement will increase. The company's EPS will increase, and the tax benefits' expenses will drop. As per the current financial report, the current net income of Target Corporation was $ 4,368,000; therefore, the abolishment of the income tax will result in an increase of net income by 10. 83 % to $ 4, 841, 000. The leverage theory will stand null, and the company will be showing profits in their income statement higher than what is earned to attract investors. The corporate taxes are placed under taxes in the current liabilities category in the company's balance sheet. The abolishment of the corporate tax will increase the current corporate assets and decrease the current liabilities. The current income tax paid by the target corporation is $ 473,000; therefore, if this tax is abolished, the current assets will increase by the amount, and the company will now have total current assets of $ 21 239 000. On the other hand, the current liabilities will decrease by $ 19 652 000. The tax liability provision will reduce in the balance sheet, and the retained earnings will increase. Nevertheless, there will be high chances to manipulate the profits, increasing it to indicate high profitability and better financial position. Question B Company’s income tax rate = income tax expenses/ Earning before Taxes Income before tax expenses = $ 5, 546, 000 Income tax expenses = $ 1,178, 0000 = $ 1, 178, 000/ $ 5, 546,000 = 21.24% The increase in the income by $ 2,000, 000 will not have any effect on the tax rate because this increase in income will also results in the increase the income tax expenses. However, if we

3 assume that the income is not included in the income tax deduction, then the tax rate will drop 10.62 %. Question C The income tax expense is recorded on the debit side of income statements. The increase in the income by $2,000,000 will result in the increase of the net income. Using the tax rate obtained in B the income tax expenses will be $ 424, 810. The income after deducting the tax expense will be $1, 575, 190. Therefore, on the net income in the income statement will be $ 5,943,190. The increase in the income will result in the increase in the current assets in the company. The income after the deduction will increase by $, 575, 190. Question D Target corporation pays taxes at state, federal and the international levels. The international taxes comprises those taxes that are paid to foreign countries that target corporation haves business in. From 2021 financial report, Target corporation paid $281, 000 at state level, $1, 013, 000 at the federal level, and $ 68,000 at the international level. Therefore, target pays $1, 294, 000( state taxes plus federal taxes) to united states. We can the calculate the percentage taxes that it pays. The net income is $ 4, 368, 0000. Foreign tax income percentage = 68,000 / 4,368,000 = 1.56 % Domestic tax income percentage = 1, 294, 000/ 4,368,000 = 29.63 %

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4 V . Pension To: The CEO From: Subject: Pensions Date: In this memo, I will provide an overview of the different types of retirement plans and their effects for organizational financial risks. A Managers in light of the obligations arising from the mutual exchange agreement. The Target Corporation has a special compensation plan to introduce representatives to future retirement payments. The organization includes this agreement because it facilitates the acquisition of obligations and expenses of partners with the organization's pension plans and other post-retirement benefits. The organization also presents a special income plan to ensure the interests of workers in the future. Target chose the plan because it offers a lifetime annuity after retirement. B. Commitment to a typical compensation plan has a major detrimental impact on an organization's summary budget. For example, commitment to the agreement reduces the amount of money that can be transferred to retained earnings and reduces the organization's value as a whole. In addition, the obligation for the organization is excessive because it reduces the overall resources in the organization. The company's pension to its owners is an expense deducted from its income. C Various options for selecting the type of retirement plan are available to organizations, including individual retirement courses, clear IRA plans, financial recovery IRAs, cash purchase plans, and employee stock ownership plans (ESOPs). I think it is appropriate for an organization to

5 use a representative shareholding plan as it aims to protect the contingent workers of the organization (Huang et al., 2020). This will convince the representative to try to work on the organization's overall financial performance. The retirement plan enables the firm to ensure that the benefits do not strain the organization's finances while ensuring the beneficiaries have enough income.

6 References Huang, K., Sim, N., & Zhao, H. (2020). Corporate social responsibility, corporate financial performance and the confounding effects of economic fluctuations: A meta-analysis. International Review of Financial Analysis , 70 , 101504. https://doi.org/10.1016/j.irfa.2020.101504

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