Reference no: EM132460193

Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia is in the 24% tax bracket, and Rover is subject to a 21% rate. Because Aleshia's contribution to the business is substantial, Rover believes that a $99,600 bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering paying Aleshia a $99,600 dividend because the tax rate on dividends is lower than the tax rate on compensation.

Answer the following questions to determine whether Rover is correct in believing that a dividend is the better choice.

Problem a. Regarding taxes, which would benefit Aleshia the most?

The $99,600 __________ because after taxes she would have $__________ from the dividend and $__________ from the bonus.

Problem b. Regarding taxes, which would benefit Rover Corporation the most?

The $99,600 __________ because it would save Rover $__________ in taxes.

Problem c. Considering the two parties together, which alternative would provide the most overall tax savings?

The $99,600 __________ because when the overall effect to both the corporation and the shareholder are considered the net tax savings is $__________.