# Fi515 Week 1

Topics: Progressive tax, Tax, Taxation Pages: 3 (498 words) Published: November 8, 2011
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)
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...