Interest versus dividend income During the year just ended, Shering Distributors, Inc., had pretax earnings from operations

Question:

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.

a. Calculate the firm's tax on its operating earnings only.

b. Find the tax and the after-tax amount attributable to the interest income from Zig Manufacturing bonds.

c. Find the tax and the after-tax amount attributable to the dividend income from the Tank Industries, Inc., common stock.

d. Compare, contrast, and discuss the after-tax amounts resulting from the interest income and dividend income calculated in parts b and c.

e. What is the firm's total tax liability for the year?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...