Question

Last year, California Sushi and Such (CSS) had sales of $65 million. The firm's operating expenses amounted to $20 million and costs of goods sold totaled $15 million. In addition, CSS received $80,000 in dividend income, and paid $300,000 in dividends to its stockholders. CSS has $25 million in bonds outstanding with an annual interest payment of 9%. The firm also had $5 million in depreciation expense, and sold land for $3.5 million that had been purchased for $2.5 million several years earlier. What is the firm's tax liability?

Answer 1

Answer:

$ 4,992,540

Explanation:

In this question, we first need to know the steps to follow. We shall use the formula:

Taxable Income = (Sales - costs sales - operating expenses - Interest Expenses - Depreciation Expenses) + Dividend Income*30% + Capital Income from sale of Land

                                                     $                          $

Sales                                                                  65,000,000

Cost of sales                                                      15,000,000

Gross profit                                                        50,000,000

Operating expenses                                         (20,000,000)

Dividend Income             80,000

Less 70% excluded        (56,000)                            24,000

Add Capital Income from sale of Land

                 Sale             3,500,000

                 Cost             2,500,000                    1,000,000

Less Interest Expenses (9%*25,000,000)        (2,250,000)

Less depreciation Expenses                             (5,000,000)

 Net Income                                                         23,774,000

Assuming a tax rate of 21%,

Tax liability = .21* 23,774,000 = $ 4,992,540