Exercise $19-26($Algorithmic$)($LO$.4,10)$

Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia is in the $24\%$ tax bracket, and Rover is subject to a $21\%$ rate. Because Aleshia's contribution to the business is substantial, Rover believes that a $$78,000$ bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering paying Aleshia a $$78,000$ 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 $$78,000$

dividend

because after taxes she would have $fill in the blank $2$

$66,300$

from the dividend and $fill in the blank $3$

$59,280$

from the bonus.

b$.$ Regarding taxes, which would benefit Rover Corporation the most?

The $$25,000$

bonus

because it would save Rover $fill in the blank $5$

$5,250$

in taxes.

c$.$ Considering the two parties together, which alternative would provide the most overall tax savings?

The $$78,000$

bonus

because when the overall effect to both the corporation and the shareholder are considered the net tax savings is $fill in the blank $7$

$.$