During the year just ended, Shering Distributors, Inc., had pretax earnings from operations of $490,000. In addition, during the year it received $20,000 in income from interest on bonds it held in Zig Manufacturing and received $20,000 in income from dividends on its 5% common stock holding in Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend exclusion on its Tank 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 interest income 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.
During the year just ended, Shering Distributors, Inc., had pretax earnings from operations of $490,000. In addition, during the year it received $20,000 in income from interest on bonds it held in Zig Manufacturing and received $20,000 in income from dividends on its 5% common stock holding in Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend exclusion on its Tank 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 interest income 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:During the year just ended, Shering Distributors, Inc.,
had pretax earnings from operations of $490,000. In
addition, during the year it received $20,000 in
income from interest on bonds it held in Zig
Manufacturing and received $20,000 in income from
dividends on its 5% common stock holding in Tank
Industries, Inc. Shering is in the 40% tax bracket and is
eligible for a 70% dividend exclusion on its Tank
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 interest income 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?
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