Frazzle Inc is a C Corporation owned 50/50 by sisters Jean and Marie. Corporate policy is to distribute all available cash to shareholders. Each shareholder is in the 35% marginal bracket and the corporation also pays a flat 21%. For the current year Frazzle earned $100,000.

a. Calculate the corporate level federal income tax.

b. Frazzle distributed the available cash to the shareholders (earnings less federal taxes) Calculate the shareholders federal tax.

c. What is the total tax paid in these earnings (corporate + shareholder)?

d. Assume instead that Frazzle had elected S status. Now what is the total tax paid on the same earnings?

e. Compare the effective tax rates of the two and comment.

f. State taxes were not considered. What would be the effect if the company and shareholders resided in a state with a 7% tax rate with no differentiation for dividend income.