Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

can someone please help me with this explaining what i did wrong? Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshla,

can someone please help me with this explaining what i did wrong? image text in transcribed
Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshla, who is also an employee, Aleshia is in the 24% tax bracket, and Rover is subject to a 21% rate. Becatse Aleshia's contribution to the business is substantial, Rover believes that a $118,800 bonus in the current year is reasonable compensation and should be deductible by the corpocation. However, Rover is considering paying Aleshia a $118,800 dividend because the tax rate on dividends is lower than the tax rate on compensation. Answer the following questions to determine whether Rover is correct in believing that a dividend is the better choice. a. Regarding taxes, which would benefit Aleshia the most? The $118,800 because after taxes she would have $ from the dividend and 1 from the bonus. b. Regarding taxes, which would benefit Rover Corporation the most? The $25,000 because it would save Rovers c. Considering the two parties together, which alternative would provide the most overall tax savings? The $118,800 because when the overall effect to both the corporation and the shareholder are considered the net tax saving is 5 x

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions