Builtrite had sales of $700,000 and COGS of $280,000. In addition, operating expenses were calculated at 25% of sales. Builtrite also received dividends of $50,000 and paid out common stock dividends of $25,000 to its stockholders. A long-term capital gain of $70,000 was realized during the year along with a capital loss of $50,000.

1. What is Builtrites taxable income?

2. Based on their taxable income, what is Builtrites tax liability?

3. If we add to our problem that Builtrite also had $10,000 in interest expense, which of the following statements is correct (assuming the same marginal tax rate of 39%)?

Taxable income would increase by $10,000

Taxable income would decrease by $10,000.

Taxable income would decrease by $6,100.

Taxable income would increase by $6,100

4. If Builtrite had experienced a long-term capital loss of $80,000 (instead of the $50,000 long-term capital loss stated in the problem), and still had the $70,000 long-term capital gain stated in the problem, which of the following is correct:

taxable income would decrease by $30,000

taxable income would not change

taxable income would decrease by $10,000

taxable income would decrease by $20,000

5. (This problem is not related to the above problem) Last year Builtrite had retained earnings of $150,000. This year, Builtrite had true net profits after taxes of $80,000 and also paid a preferred dividend of $20,000. What is Builtrites new level of retained earnings?