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Jabar Corporation, a C corporation, projects that it will have taxable income of $255,000 before incurring any lease expenses. Jabar's tax rate is 35 percent. Abdul, Jabar's sole shareholder, has a marginal tax rate of 39.6 percent on ordinary income and 20 percent on dividend income. Jabar always distributes all of its after-tax earnings to Abdul.

a.What is the amount of the overall tax (corporate level + shareholder level) on Jabar Corp.'s $255,000 prelease expense income if Jabar Corp. distributes all of its after-tax earnings to its sole shareholder, Abdul (Include the Medicare Contribution Tax on dividend and rental income.)?

  • Taxable income before lease payment
  • Lease payment
  • Entity tax
  • After-tax entity earnings
  • Abdul's tax on dividends
  • Abdul's tax on lease payment
  • Overall tax

 

b.What is the amount of the overall tax on Jabar Corp.'s $255,000 prelease expense income if Jabar leases equipment from Abdul at a cost of $26,350 for the year (Include the Medicare Contribution Tax on dividend and rental income.)?

  • Taxable income before lease payment
  • Lease payment
  • Entity tax
  • After-tax entity earnings
  • Abdul's tax on dividends
  • Abdul's tax on lease payment
  • Overall tax

 

c.What is the amount of the overall tax on Jabar Corp.'s $255,000 prelease expense income if Jabar Corp. leases equipment from Abdul at a cost of $26,350 for the year but the IRS determines that the fair market value of the lease payments is $18,000 (Include the Medicare Contribution Tax on dividend and rental income.)?

  • Taxable income before lease payment
  • Lease payment
  • Entity tax
  • After-tax entity earnings
  • Abdul's tax on dividends
  • Abdul's tax on lease payment
  • Overall tax

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M9969398

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