Below is a diagram representing the ownership structure of Hey Man Bakery, Inc. Assuming that Hey Man Bakery, Inc is a corporation , please describe how the concept of double taxation and how it would apply if Hey Man Bakery, Inc. generated positive taxable net income in its first year (see below the calculation of Net Income Before Tax). PLEASE NOTE: You do not need to calculate the taxable income to Hey Man Bakery, Inc or to its shareholders. Simply describe what double taxation is and how it would apply to this fact pattern.

For this question, please assume that Hey Man Bakery, Inc was formed in the United States, and assume that the corporate tax rate is a flat 21% and individual tax rates top out at 37%.

GERTRUDE SHORTY BAMBOOM 33.33% 33.33% 33.33% Hey Man Bakery, Inc. Gross Revenue COGS Interest Expense Depreciation Expense Net Income Before Tax 10,000 (5,000) (1,000) (1,000) 3,000