5. (10 pts) A company reported $84,000,000 in revenue in 2017. They had cost of
ID: 2657302 • Letter: 5
Question
5. (10 pts) A company reported $84,000,000 in revenue in 2017. They had cost of goods sold of $61,000,000, overhead costs of $6,000,000 and depreciation expenses of $4,250,000 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
2017 Income Statement Computation (All in $ except wherever mentioned):
Revenue------(i)
84,000,000
Cost of Goods Sold ------ (ii)
61,000,000
Gross Profit ----------- (iii) = (i) – (ii)
23,000,000
Overhead Expenses -----(iv)
6,000,000
Depreciation Expense ------ (v)
4,250,000
Earnings Before Interest & Tax (EBIT)---- [(vi) = (iii)-(iv)-(v)]
12,750,000
Income tax to be paid (Please refer below for the calculation)----(vii)
4,362,500
Net Income (viii) = (vi) – (vii)
8,387,500
Tax Calculation using Pre 2018 tax rates:
Since the total taxable income = $ 12,750,000
Therefore, the tax bracket to be considered is $10,000,001 - $15,000,000.
Using the corresponding formula, the tax to be paid =$ 3,400,000 + [0.35 x (12,750,000 – 10,000,000)]
= $4,362,500
Taxable Income = $12,750,000
Income Taxes = $4,362,500
Net Income = $8,387,500
2018 Income Statement Computation (All in $ except wherever mentioned):
Revenue------(i)
84,000,000
Cost of Goods Sold ------ (ii)
61,000,000
Gross Profit ----------- (iii) = (i) – (ii)
23,000,000
Overhead Expenses -----(iv)
6,000,000
Depreciation Expense ------ (v)
4,250,000
Earnings Before Interest & Tax (EBIT)---- [(vi) = (iii)-(iv)-(v)]
12,750,000
Income tax to be paid (Please refer below for the calculation)----(vii)
4,362,500
Net Income (viii) = (vi) – (vii)
8,387,500
Tax Calculation using 2018 21% corporate tax rate:
Since the total taxable income = $ 12,750,000
Therefore, the tax to be paid =$ 0.21 x (12,750,000)= $2,677,500
Therefore total savings in income tax = $4,362,500 - $2,677,500 = $1,685,000
Revenue------(i)
84,000,000
Cost of Goods Sold ------ (ii)
61,000,000
Gross Profit ----------- (iii) = (i) – (ii)
23,000,000
Overhead Expenses -----(iv)
6,000,000
Depreciation Expense ------ (v)
4,250,000
Earnings Before Interest & Tax (EBIT)---- [(vi) = (iii)-(iv)-(v)]
12,750,000
Income tax to be paid (Please refer below for the calculation)----(vii)
4,362,500
Net Income (viii) = (vi) – (vii)
8,387,500
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.