Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Incorporated, which manufactures greeting cards. Toto’s average annual net profit (before deduction of Mr. Lion’s salary) is $200,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.) Mr. Lion’s salary is $100,000, and Toto pays no dividends. Mr. Lion’s salary is $100,000, and Toto distributes its after-tax income as a dividend.
Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Incorporated, which manufactures greeting cards. Toto’s average annual net profit (before deduction of Mr. Lion’s salary) is $200,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.) Mr. Lion’s salary is $100,000, and Toto pays no dividends. Mr. Lion’s salary is $100,000, and Toto distributes its after-tax income as a dividend.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Mr. Lion, who is in the 37 percent tax bracket, is the sole shareholder of Toto Incorporated, which manufactures greeting cards. Toto’s average annual net profit (before deduction of Mr. Lion’s salary) is $200,000. For each of the following cases, compute the income tax burden on this profit. (Ignore any payroll tax consequences.)
- Mr. Lion’s salary is $100,000, and Toto pays no dividends.
- Mr. Lion’s salary is $100,000, and Toto distributes its after-tax income as a dividend.
My solutions: 1. $58,000, 2. $87,230
This was a homework problem that I missed. Could you please explain how to do it correctly?
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