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Accounting 101

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Solution Note: Owing to Tax reforms imposed through the tax act of 2017, computation on tax liability varies with period unde METHOD ONE a) When corporate tax period is not later than January 2018. i) Federal income tax bill We will rely on corporate tax rate schedule: 2005 - 2017 for calculation of tax as per (a) From To Tax base 50,000 50,000 50,000 75,000 25,000 75,000 100,000 25,000 100,000 335,000 235,000 335,000 10,000,000 9,665,000 10,000,000 10,500,000 500,000 Tax liability is therefore $3,575,000 ii) If firm receives extra $1 million from Bonds The change is $1,000,000 Amount Rate $ 1,000,000 Tax 35% $ 350,000 Tax 35% $ 105,000 iii) If firm receives extra $1 million from dividends Dividends income is exempt 70%. Therefore, Amount Taxable income Rate $ 1,000,000 $ 300,000 METHOD TWO b) Corporate period is after January 2018 Tax cut act passed in 2017 changed corporate tax rate from graduated scale adding upto 35% to flat rate of 21%. i) Federal income tax bill Taxable income Tax rate (Flat @ 21%) Tax thereon $ 10,500,000 21% 2,205,000 ii) If firm receives extra $1 million from Bonds Taxable income Tax rate (Flat @ 21%) Tax thereon $ 1,000,000 21% 210,000 iii) If firm receives extra $1 million from dividends Amount Taxable income Rate $ 1,000,000 $ 300,000 Tax 21% $ 63,000 on on tax liability varies with period under income. - 2017 for calculation of tax as per (a) above. Tax rate Tax Cumulative 15% 7,500 7,500 25% 6,250 13,750 34% 8,500 22,250 39% 91,650 ...
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