5. (10 pts) A company reported S84,000,000 in revenue in 2017. They had cost of

Question

5. (10 pts) A company reported S84,000,000 in revenue in 2017. They had cost of goods sold of $61,000,000, overhead costs of S6,000,000 and depreciation expenses of S4,250,000 According to Pre-2018 tax brackets (found at the end of the exam), a) what is the taxable income, the total tax, and the net income for this company for 2017? b) If the company reports the exact same revenue and expenses in 2018, how much savings would the company see in their income taxes thanks to the new 2018 21% corporate tax rate?

Explanation / Answer

Soln : Step 1 : First of calculate the income before tax with given data , considering the depreciation given as for this 1 year 2017

Taxable income = Revenue - COGS - Overhead- Depreciation

Now as we can see that the Taxable income is between the 35% tax bracket,

Tax Value = 3400000 +0.35*(12750000 - 10000000) = 4362500

Net Income = Taxable income - tax value = 12750000- 4362500 = $8387500

b) In case comapny is having same revenue and other things , the tax payable = 21% * 12750000 = 2677500

Saving in Tax payable = 4362500-2677500 = $1685000

Revenue 84000000 COGS 61000000 Overhead cost 6000000 Depreciation 4250000 Taxable Income 12750000

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