M is the sole shareholder of N Corporation. For the past five years, N has reported little or no taxable income as aresult of paying M a salary of $500,000 per year. During a recent IRS audit, the revenue agent determined thatM's educational and business experience, and his time devoted to managing N, justified a salary of only$200,000. Thus, the agent recharacterized $300,000 of the payments from the corporation as a dividend.Assume that all dividends are taxed to the individuals at a 20% tax rate. What are the annual tax savings to M asa result of the constructive dividend treatment? Calculate the change in M's income tax liability as a result of thischange. Assume that M's marginal tax rate on ordinary income is 37 percent. (Ignore any payroll taxconsequences.)

Working notes:- M's Salary = $ 500000…

Answered: ducational and busi .000. Thus, the age

Business

Accounting

ducational and busi .000. Thus, the age

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

Q: Under which situation is the simple rate equal to the effective annual rate, and under which…

A: Simple interest is a linear function of time since it is computed on the initial principal amount…

Q: ven that i = 0.05, calculate the present value of the following series of payments: Time 0 1 2…

A: Present value is the equivalent value of the future cash flow based on the time value of money and…

Q: 2. Let the force of interest be 8(t) = 0.06 when t is between 0 and 10 and 8(t) = 0.06+.01(t-10) for…

Q: 1. Compute the IRR for the investment represented by the following cash flow table: Year 0. 1 3 4 6.…

A: An internal rate of return or IRR is referred to as the metric, which are used in the financial…

Q: What is Gross working capital

A: Gross working capital of the company refers to the total assets of the company. Current assets are…

Q: Define Long-Term Notes.

A: Liability: It is the sum of money owed by the company to external entities.

Q: What is the realized return? (round to 2 decimal places)

A: Steps in calculating realized return: Step I: Subtract the beginning price (P0) from the ending…

Q: BE.09.09 Fixed asset turnober ratio 20Y5, 20Y4

A: Fixed Assets Turnover Ratio:- It measures how well a company is using Fixed assets to generate…

Q: How is the present value of a lump sum determined?

A: Definition: Present value: It refers to the current value of the whole amount that will be…

Q: How

A: Property Capital Gains and Losses Flashcards.I got the number -6200 on the capital gains/losses…

Q: ersity are from the metropolitan area and visit their hc zes that few good commuting alternatives…

A: The cashback period refers to the time frame it takes to recover the cost of an asset or investment.

Q: If a capital investment is $28,048 and equal annual cash inflows are 62,605.3, state the internal…

A: Solution: Internal rate of return factor is arrived at by dividing capital investment by annual cash…

Q: Windsor Enterprises is using a discounted cash flow model Identify which model Windsor might use to…

A: The time value of money is a concept related to the change in the value of money as time passes. The…

Q: The formula for calculating the discount rate to use in net present value (NPV) calculations is as…

A: Present value is the discounted value of the amount of future value. Discount rate is calculated…

Q: Cullumber Inc. owns and operates a number of hardware stores in the Atlantic region. Recently, the…

A: A company can either purchase an asset or take it on the lease after evaluating the costs and…

Q: Define the terms annual percentage rate (APR), effective annual rate (EFF%), and nominalinterest…

A: The term “annual percentage rate (APR)” refers to the annual rate of interest charged to borrowers…

Concept explainers

Contingent Liabilities and Provisions

A contingent liability can be defined as a liability the occurrence of which is dependent upon the happening of an uncertain future event. It is generally recorded in the books only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly.

Question

M is the sole shareholder of N Corporation. For the past five years, N has reported little or no taxable income as a
result of paying M a salary of $500,000 per year. During a recent IRS audit, the revenue agent determined that
M's educational and business experience, and his time devoted to managing N, justified a salary of only
$200,000. Thus, the agent recharacterized $300,000 of the payments from the corporation as a dividend.
Assume that all dividends are taxed to the individuals at a 20% tax rate. What are the annual tax savings to M as
a result of the constructive dividend treatment? Calculate the change in M's income tax liability as a result of this
change. Assume that M's marginal tax rate on ordinary income is 37 percent. (Ignore any payroll tax
consequences.)

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Accounting for Current liabilities, Provisions and Contingencies

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

Use this formula to identify each item listed below ??=250((1+0.042512)12×15−1)÷(0.042512)FV=250((1+0.042512)12×15−1)÷(0.042512) payment compounded Interest rate time
Consider the following timeline: Date 0 i + $500 2 OA. $666. B. $605. C. $500. OD. $650. 3 Cash flow If the current market rate of interest is 10%, then the future value of the cash flows on this timeline is closest to:
For the intrinsic value, why is the cashflow divided by (10%-6%)?
In Question 3, assume that GDP=$12, C=$3, G=$2, M–X=$1, R=6%, INF=12%. Calculate the capital investment spending (I). A. I=$5. B. I=$8. C. I=-$3. D. I=$4.
The following information relates to four assets: Probability Return on E Return on F Return on G Return on H 0.1 10% 6% 14% 2% 0.2 10% 8% 12% 6% 0.4 10% 10% 10% 9% 0.2 10% 12% 8% 15% 0.1 10% 14% 6% 20% (a) What is the expected return for each of the assets? (4) (b) Calculate the variance of each asset. (8) (c) Determine the covariance of asset F and G. (4) (d) What is the correlation coefficient between assets F and G? (4)
Assets Cash Receivables (net) Inventory PP & E (net) Patents&Licenses Goodwill Total assets Liabilities & Equity Accounts payable Short term debt Long term debt Preferred stock Common Equity Total Liabilities + Equity New Chip Corp Balance Sheet at 12/31/22 ($ in Millions) 31 45 64 215 28 19 402 53 19 179 23 128 402
Suppose S(NZD/USD) = 1.5000 and S(MYR/USD) = 4.4000. What is the cross rate S(MYR/NZD)? Choose the closest answer to your own calculations. a. 2.9333 b. 0.3409 c. 6.6000 d. 0.1515
3. If a capital investment is $28,752.7 and equal annual cash inflows are 69,943.5, state the internal rate of return factor rounded to two decimal places.
Define times-interest-earned (TIE) ratio
Define the present value of a single amount.
FV(Quar.) = $100(1.03)20 = $
Round to four decimal places.