Exercise 19-26 (Algorithmic) (LO. 4, 10)Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia is in the 24% taxbracket, and Rover is subject to a 21% rate. Because Aleshia's contribution to the business is substantial, Rover believes that a $94,800bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering payingAleshia a $94,800 dividend because the tax rate on dividends is lower than the tax rate on compensation.Answer the following questions to determine whether Rover is correct in believing that a dividend is the better choice.a. Regarding taxes, which would benefit Aleshia the most?The $94,800 dividendfrom the bonus.because after taxes she would have $80,580from the dividend and72,048b. Regarding taxes, which would benefit Rover Corporation the most?The $25,000 bonusbecause it would save Rover5,250in taxes.c. Considering the two parties together, which alternative would provide the most overall tax savings?The $94,800 bonusbecause when the overall effect to both the corporation and the shareholder are considered the net taxsavings is $

a. Regarding taxes, Aleshia would benefit more from receiving the $94,800 dividend compared to the…

Answered: Exercise 19-26 (Algorithmic) (LO. 4,…

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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Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia is in the 24% tax bracket, and Rover is subject to a 21% rate. Because Aleshia's contribution to the business is substantial, Rover believes that a $49,200 bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering paying Aleshia a $49,200 dividend because the tax rate on dividends is lower than the tax rate on compensation. Answer the following questions to determine whether Rover is correct in believing that a dividend is the better choice. a. Regarding taxes, which would benefit Aleshia the most? The $49,200 dividend bonus. because after taxes she would have: b. Regarding taxes, which would benefit Rover Corporation the most? The $25,000 because it would save Rover $ from the dividend and in taxes. c. Considering the two parties together, which alternative would provide the most overall tax…
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