Problem: Interest versus dividend income
During the year just ended, Shering Distributors, Inc., had pretax earnings from operations of $490,000. In addition, during the year it received $20,000 in income from interest on bonds it held in Zig Manufacturing and received $20,000 in income from dividends on its 5% common stock holding in Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend exclusion on its Tank Industries stock.
Q1. Calculate the firms tax on its operating earnings only.
Q2. Find the tax and the after-tax amount attributable to the interest income from Zig Manufacturing bonds.
Q3. Find the tax and the after-tax amount attributable to the dividend income from the Tank Industries, Inc., common stock.