Explain Interest versus dividend income

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Interest versus dividend income   

During the year just ended, Shering Distributors, Inc., had pretax earnings from operations of $482,000. In addition, during the year it received $22,000 in income from interest on bonds it held in Zig Manufacturing and received $22,000 in income from dividends on its 4% common stock holding in Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend exclusion on its Tank Industries stock.

Question a. Calculate the firm's tax on its operating earnings only.

Question b. Find the tax and the after-tax amount attributable to the interest income from Zig Manufacturing bonds.

Question c. Find the tax and the after-tax amount attributable to the dividend income from the Tank Industries, Inc., common stock.

Question d. Compare, contrast, and discuss the after-tax amounts resulting from the interest income and dividend income calculated in parts b. and c.

Question e. What is the firm's total tax liability for the year?

Reference no: EM132607209


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