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Jones owns 100 percent of X Corporation. X Corporation's overall marginal tax rate is 35 percent. Jones' overall marginal tax rate is 30 percent. Jones needs $40,000 from the firm. The firm has decided that it either will declare a dividend of $40,000 or will pay Jones a performance-based bonus of $40,000.

a. Overall, it is best if the firm declares the dividend.

b. Overall, it is best if the firm pays a bonus.

c. Overall, both parties should be indifferent regarding what form the distribution takes.

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Accounting Basics, Accounting

Category:- Accounting Basics
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