Last year, your company had sales of $4,800,000 and cash operating expenses of $400,000. The firm received $80,000 in dividend income and paid $50,000 in dividends to its shareholders. Costs of goods sold came to $1,600,000 and the firm had $600,000 in depreciation expense. Your firm has $900,000 in long-term debt outstanding with a 5% interest rate. Calculate the firm's tax liability.

Question

Business

Diesel

5 February, 08:00

Last year, your company had sales of $4,800,000 and cash operating expenses of $400,000. The firm received $80,000 in dividend income and paid $50,000 in dividends to its shareholders. Costs of goods sold came to $1,600,000 and the firm had $600,000 in depreciation expense. Your firm has $900,000 in long-term debt outstanding with a 5% interest rate. Calculate the firm's tax liability.

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Carolina King · Answer 1

The firm's tax liability at 21% = $469350

Explanation:

Given that:

Sales = $4,800,000

cash operating expenses = $400,000

Dividend income = $80,000

Payment to shareholders = $50,000

Costs of goods sold = $1,600,000

Depreciation expense of the firm = $600,000

long-term debt outstanding = $900,000

Interest rate = 5% of long-term debt outstanding

= 0.05 * $900,000

= $45000

We are to Calculate the firm's tax liability.

Since 2018; Tax rate = 21%

So:

The firm's tax liability at 21% = (Sales + Dividend income - cash operating expenses - Costs of goods sold - Depreciation expense of the firm - Interest rate) * 21 %

The firm's tax liability at 21% = ($4,800,000 + $80,000 - $400,000 - $1,600,000 - $600,000 - $45000) * 21 %

The firm's tax liability at 21% = $ (4880000 - 2645000) * 0.21

The firm's tax liability at 21% = $2235000 * 0.21

The firm's tax liability at 21% = $469350