During the year just ended, Shering Distributors, Inc.,
had pretax earnings from operations of $ 488 comma 000$488,000. In addition,
during the year it received $ 28 comma 000$28,000 in income from interest on
bonds it held in Zig Manufacturing and received $ 28 comma 000$28,000 in income
from dividends on its 6 %6% common stock holding in Tank Industries, Inc.
Shering is in the 34 %34% tax bracket and is eligible for a 70 %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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