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17 October, 03:41

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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  1. 17 October, 03:42
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    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
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