Benton Company (BC), a calendar year entity, has one owner, who is in the 37% Federal income tax bracket (any net capital gains or dividends would be taxed at a 20% rate). BC’s gross income is $395,000, and its ordinary trade or business deductions are $245,000. Compute the Federal income tax liability on BC’s income for the current year under the following assumptions. Ignore the standard deduction (or itemized deductions) and the deduction for qualified business income. a. BC is operated as a proprietorship, and the owner withdraws $100,000 for personal use. b. BC is operated as a corporation, pays out $100,000 as salary, and pays no dividends to its shareholder. c. BC is operated as a corporation and pays out no salary or dividends to its shareholder. d. BC is operated as a corporation, pays out $100,000 as salary to its shareholder, and pays out the remainder of its earnings as dividends. e. Assume that Robert Benton of 1121 Monroe Street, Ironton, OH 45638 is the owner of BC, which was operated as a proprietorship. Robert is thinking about incorporating the business for next year and asks your advice. He expects about the same amounts of income and expenses and plans to take $100,000 per year out of the company whether he incorporates or not. Based on your analysis in parts (a) and (b), write a letter to Robert containing your recommendations.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

LO.3,7 Benton Company (BC), a calendar year entity, has one owner, who is in the 37% Federal income tax bracket (any net capital gains or dividends would be taxed at a 20% rate). BC’s gross income is $395,000, and its ordinary trade or business deductions are $245,000. Compute the Federal income tax liability on BC’s income for the current year under the following assumptions. Ignore the standard deduction (or itemized deductions) and the deduction for qualified business income.

a. BC is operated as a proprietorship, and the owner withdraws $100,000 for personal use.

b. BC is operated as a corporation, pays out $100,000 as salary, and pays no dividends to its shareholder.

c. BC is operated as a corporation and pays out no salary or dividends to its shareholder.

d. BC is operated as a corporation, pays out $100,000 as salary to its shareholder, and pays out the remainder of its earnings as dividends.

e. Assume that Robert Benton of 1121 Monroe Street, Ironton, OH 45638 is the owner of BC, which was operated as a proprietorship. Robert is thinking about incorporating the business for next year and asks your advice. He expects about the same amounts of income and expenses and plans to take $100,000 per year out of the company whether he incorporates or not. Based on your analysis in parts (a) and (b), write a letter to Robert containing your recommendations.

32. LO.3, 7 Benton Company (BC), a calendar year entity, has one owner,
who is in the 37% Federal income tax bracket (any net capital gains or
dividends would be taxed at a 20% rate). BC's gross income is $395,000,
and its ordinary trade or business deductions are $245,000. Compute the
Federal income tax liability on BC's income for the current year under the
following assumptions. Ignore the standard deduction (or itemized
deductions) and the deduction for qualified business income.
Decision Making
Critical Thinking
Communications
a. BC is operated as a proprietorship, and the owner withdraws $100,000 for personal use.
b. BC is operated as a corporation, pays out $100,000 as salary, and pays no dividends to its
shareholder.
c. BC is operated as a corporation and pays out no salary or dividends to its shareholder.
d. BC is operated as a corporation, pays out $100,000 as salary to its shareholder, and pays out the
remainder of its earnings as dividends.
e. Assume that Robert Benton of 1121 Monroe Street, Ironton, OH 45638 is the owner of BC, which
was operated as a proprietorship. Robert is thinking about incorporating the business for next year
and asks your advice. He expects about the same amounts of income and expenses and plans to take
$100,000 per year out of the company whether he incorporates or not. Based on your analysis in
parts (a) and (b), write a letter to Robert containing your recommendations.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 5 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Financial Reporting in Hyperinflationary Economies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions