Fi 515 Assignment 1

In: Business and Management

Submitted By oh0hcheerio
Words 692
Pages 3
Problems 2-6, 2-7 & 2-9
(2-6) Statement of Retained Earnings
In its most recent financial statements, Newhouse Inc. reported $50 million of net income and $810 million of retained earnings. The previous retained earnings were $780 million. How much in dividends was paid to shareholders during the year?
Formula:
* New Balance Retained Earning = Previous Balance Retained Earning + Net Income - Dividend Paid * Dividend Paid = Previous Balance Retained Earning + Net Income - New Balance Retained Earning
Answer:
Dividend = $780 million + $50 million - $810 million= $830 million - $810 million= $20 million

(2-7) Corporate Tax Liability
The Talley Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest charges of $50,000, (2) dividends received of $15,000, (3) dividends paid of $25,000, and (4) income taxes. 1. What are the firm’s income tax liability and its after-tax income? 2. What are the company’s marginal and average tax rates on taxable income?
“Interest income received by a corporation is taxed as ordinary income at regular corporate tax rates. However, 70% of the dividends received by one corporation from another are excluded from taxable income, while the remaining 30% is taxed at the ordinary tax rate.”
(Brigham, Eugene F. . Financial Management: Theory & Practice, 13th Edition. South Western Educational Publishing, 03/2010. p. 72). <vbk:1111894922#outline(3.11.1.1)>
Formula:
* After-tax income = Before-tax income – Taxes * =Before-tax income – (Before-tax income)(Effective tax rate) * =Before-tax income (1 – Effective tax rate)
(Brigham, Eugene F. . Financial Management: Theory & Practice, 13th Edition. South Western Educational Publishing, 03/2010. p. 72). <vbk:1111894922#outline(3.11.1.1)>
Answer:
Talley’s Tax Liability:
Taxable…...

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