During the current year, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $280,000, a short-term capital loss of $10,000, and a long-term capital gain of $25,000. How much is Sparrow's income tax liability for the year?

Question

Aaron Sims

Business

17 July, 16:41

During the current year, Sparrow Corporation, a calendar year C corporation, had operating income of $425,000, operating expenses of $280,000, a short-term capital loss of $10,000, and a long-term capital gain of $25,000. How much is Sparrow's income tax liability for the year?

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Answers (1)

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Wolfgang · Answer 1

Answer: $ 45,650

Explanation:

Net Operating Income = Operating income - Operating Expenses

= $425,000 - $280,000

= $145,000

Net capital gain = Long-term capital gain - short-term capital loss

= $25,000 - $10,000

= $15,000

Taxable Income = Net Operating Income + Net capital gain

= $145,000 + $15,000

= $160,000

Total Tax Liability = Tax on $100,000 - Tax on ($16,000-$100,000) @ 39%

= $ 22,250 + $23,400

= $ 45,650