Fi515 Week 1

Only available on StudyMode
  • Download(s) : 465
  • Published : November 8, 2011
Open Document
Text Preview
Question (2-6)
In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were $780 million. How much in dividends was paid to shareholders during the year? New Balance retained earning = Previous Balance retained earning + net income + Dividend paid Dividend paid = Previous Balance retained earning + net income - New Balance retained earning Dividend = $780 million + $50 million - $810 million

= $830 million - $810 million
= $20,000,000

Question (2-7)
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. a)What are the firm’s income tax liability and its after-tax income? b)What are the company’s marginal and average tax rates on taxable income? For a corporation, 70% of dividends received are excluded from taxes; so taxable dividends are calculated with the remained 30% Company’s Tax Liability:

Taxable operating income $ 365,000
Taxable interest ($ 50,000)
Taxable dividend received $ 4,500
15,000 * (1 – 0.70)
Total taxable income $ 319,500
The marginal rate for this company is 39%
The non-taxable dividends are: $15,000 * 0.7 = $ 10,500

The tax is:
Tax Liability = $ 22,250 + (319,500 – 100,000)*0.39
= $ 107,855
After Tax-income:
Taxable income $ 319,500
Taxable ($ 107,855)
Non-taxable dividend
Received 15,000 * (0.70) $ 10,500
Net income $ 222,145

Average tax rate = Taxable interest income / Taxable operating income = 107855 / 319500 = 0.337574 *100% = 33.7574 = 33.76 %
Average tax rate is 33.8 %


Question (2-9)
The Shrieves Corporation has $10,000 that it plans to...
tracking img