Interest versus dividend income During the year just ended, Shering Distributors,

Inc., had pretax earnings from operations of $490,000. In addition, during the year

it received $20,000 in income from interest on bonds it held in Zig Manufacturing

and received $20,000 in income from dividends on its 5% common stock holding in

Tank Industries, Inc. Shering is in the 40% tax bracket and is eligible for a 70% dividend

exclusion on its Tank Industries stock.

a. Calculate the firms tax on its operating earnings only.

b. Find the tax and the after-tax amount attributable to the interest income from

Zig Manufacturing bonds.

c. Find the tax and the after-tax amount attributable to the dividend income from

the Tank Industries, Inc., common stock.

d. Compare, contrast, and discuss the after-tax amounts resulting from the interest

income and dividend income calculated in parts b and c.

e. What is the firms total tax liability for the year?