American Corporation has two equal shareholders, Mr. Freedom and Brave, Incorporated. In addition to their investments in Americanstock, both shareholders have made substantial loans to American. During the current year, American paid $200,000 interest each toMr. Freedom and Brave, Incorporated. Assume that American and Brave have 21 percent tax rates, and Mr. Freedom's marginal tax rateon ordinary income is 37 percent.Required:a. Calculate American's tax savings from deduction of these interest payments and their after-tax cost.b. Calculate Brave's tax cost and after-tax earnings from its receipt of interest income from American.c. Calculate Mr. Freedom's tax cost and after-tax earnings from his receipt of interest income from American.e. Recalculate Brave's tax cost and after-tax earnings assuming its receipt of interest from American is treated as a constructivedividend.f. Recalculate Mr. Freedom's tax cost and after-tax earnings assuming his receipt of interest from American is treated as a constructivedividend. a. Tax savingsa. After-tax cost of interestb. Tax costb. After-tax earningsc. Tax costc. After-tax earningse. Tax coste. After-tax earningsf. Tax costf. After-tax earnings$$$$$$$$CAAmount84,000316,00042,000158,00074,000126,00014,700185,300

Dividends can be in the form of cash and non-cash such as stocks. However, a constructive dividend…

Answered: American Corporation has two equal…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A single individual that has 100,000 taxable income before dividends and is in the 28% marginal tax bracket, if that individual receives a qualified cash dividend of 1,000 the tax rate applied to the dividend would be 15%. What would be the tax liability for the individual? Note Tax tables 34,000 – 82,400 = 4,581.25 + (82,400 – 34,000) x 25%
(Corporate income tax) Boisjoly Productions had taxable income of $19.9 million. a. Calculate Boisjoly's federal income taxes by using the corporate tax rate structure in the popup window, b. Now calculate Boisjoly's average and marginal tax rates. c. What would Boisjoly's federal income taxes be if its taxable income was $29.3 million? d. Now calculate Boisjoly's average and marginal tax rates with taxable income of $29.3 million. a. Calculate Boisjoly's federal income taxes. The total tax due is $. (Round to the nearest dollar.)
During the year, CDE Corporation earned enough profits to pay dividends to its shareholders. CDE is a C corporation. What are the tax consequences of this distribution? (a) The corporation will increase their earnings and profits by the amount distributed. (b) The corporation will reduce its taxable income by the amount distributed to the shareholders. (c) The corporation will pay a flat tax of 21% on the amount distributed. The shareholders also include their dividends received in taxable income. (d) There are no direct tax consequences for either the corporation or the shareholders.
Firm Z, a corporation with a 21 percent tax rate, has $100,000 to invest in year 0 and two investment choices. Investment 1 will generate $12,000 taxable cash flow annually for years 1 through 5. In year 5, the firm can sell the investment for $100,000. Investment 2 will not generate any taxable income or cash flow in years 1 through 5, but in year 5, the firm can sell Investment 2 for $165,000. Assuming a 6 percent discount rate, which investment has the greater NPV? Would your answer change if Firm Z were a noncorporate taxpayer with a 35 percent tax rate and the gain on sale of Investment 2 were eligible for the 15 percent capital gains rate?
ACME Partnership, a consulting firm, has had the following gross receipts since its formation: $22,800,000 in year 1, $24,600,000 in year 2, $33,800,000 in year 3 and $31,700,000 in year 4. ACME is not a tax shelter. Assume the gross receipts threshold for Year 3 is $25,000,000 and Year 4 is $27,000,000. In which tax years must ACME start using the accrual method? A) Year 3 if none of the partners is a C corporation. B) Year 4 if none of the partners is a C corporation. C) Year 3 if one of the partners is a C corporation. D) Year 4 if one of the partners is a C corporation.
1. Corp A wishes to acquire the business of Corp T. Corp T stock is worth $650 million, and its shareholders cumulatively have a tax basis of $300 million in the Corp T shares. Corp T has no debt, very little cash, and assets with a cumulative tax basis of $100 million. Assume the Corp T shareholders don't want to pay tax on their gain. Which transactions are available in the following scenarios? a. Corp A is willing to use only its voting stock to acquire Corp T b. Corp A wants to use its stock to acquire only 80% of Corp T, and pay cash for the rest, and it needs Corp T to continue in existence (due to valuable licenses Corp T holds) c. Corp A wants to acquire the assets of Corp T for itself and have Corp T go out of existence d.Corp A wants one of its subsidiaries to acquire the assets of Corp T
Gis a cash basis consultant.His balance sheet at the end of the year shows receivables of $100 and accounts payable for utilities of $30. What is G's basis in the receivables? If G transfers the receivables to a new corporation in exchange for 100% of the stock and the corporation assumes the liabilities is G taxed on the transfer?
need answer in step by step
You bought 1,000 shares of Tund Corp. stock for $90.03 per share and sold it for $60.59 per share within the same year. How will your gain or loss be treated when you file your taxes? O As a capital loss deducted from current taxable income O As a capital gain taxed at the current ordinary-income tax rate OAs a capital loss taxed at the long-term tax rate O As a capital loss deducted from taxable income in the year that the loss is realized
The Dakota Corporation had a 2021 taxable income of $20,000,000 from operations after all operating costs but before (1) interest charges of $3,800,000, (2) dividends received of $320,000, (3) dividends paid of $2,200,000, and (4) income taxes (the firm’s tax rate is 21 percent).a. Calculate Dakota’s income tax liability. (Round your answer to the nearest dollar amount.) With a marginal and average tax rate of 21% The income tax liability is NOT 3,469,200
Compute the deferred tax items created (if any) under each of the following scenarios. (1USD=1.24CAD and tax rate is 21%) Wintrust owns 85% of Nova Scotia bank, a Canadian subsidiary. During the current year Nova Scotia reported 200,000CAD of net income but paid a total cash dividend of 50,000CAD. How should the two file their tax returns? How much Deferred tax Liabilities ( Assets) should be reported in the consolidated statement in USD?
Maxwell's annual financial statements show operating profit before interest and tax of $415,386 thousand, net income of $254,418 thousand, provision for income taxes of $73,016 thousand and net nonoperating expense before tax of $87,593 thousand.Assume Maxwell's statutory tax rate for the year is 37%. Maxwell's tax shield is:

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