The Dakota Corporation had a 2015 taxable income of $35,500,000 from operations

Question

The Dakota Corporation had a 2015 taxable income of $35,500,000 from operations after all operating costs but before (1) interest charges of $8,800,000; (2) dividends received of $780,000; (3) dividends paid of $5,400,000; and (4) income taxes. Use the tax schedule in Table 2.3 to calculate Dakota's income tax liability. (Round your answer to the nearest dollar amount.) Income tax Eability What are Dakota's average and marginal tax rates on taxable income? (Round your answers to the nearest whole percent.) Average tax rate Marginal tax rate

Explanation / Answer

COMPUTATION OF TAXABLE INCOME OF DAKOTA CORPORATION-

First 70% of dividend is not taxable, i.e. 70% of 780000 = $546000

Taxable dividend: 780000 - 546000 = $234000

Taxable Income = 35500000 - 8800000 + 234000

Taxable Income = $26934000

Tax Liability-

Taxable Income $26934000 falls under 35% tax bracket as per 2015 tax slabs.

6416667 + 35% (26934000 - 18333333) = 3010233.45 = $9426900.45 (Taxable Liability)

Average tax rate = 9426900.45 / 26934000 = 35%

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