Jabar Corporation, a C corporation, projects that it will have taxable income of $255,000 before incurring any lease expenses. Jabars tax rate is 35 percent. Abdul, Jabars sole shareholder, has a marginal tax rate of 39.6 percent on ordinary income and 20 percent on dividend income. Jabar always distributes all of its after-tax earnings to Abdul.

a.

What is the amount of the overall tax (corporate level + shareholder level) on Jabar Corp.s $255,000 prelease expense income if Jabar Corp. distributes all of its after-tax earnings to its sole shareholder, Abdul (Include the Medicare Contribution Tax on dividend and rental income.)? Taxable income before lease payment = Lease payment = Entity tax = After-tax entity earnings= Abdul's tax on dividends = Abdul's tax on lease payment = Overall tax =

b.

What is the amount of the overall tax on Jabar Corp.s $255,000 prelease expense income if Jabar leases equipment from Abdul at a cost of $26,350 for the year (Include the Medicare Contribution Tax on dividend and rental income.)? Taxable income before lease payment = Lease payment = Entity tax = After-tax entity earnings= Abdul's tax on dividends = Abdul's tax on lease payment = Overall tax =

c.

What is the amount of the overall tax on Jabar Corp.s $255,000 prelease expense income if Jabar Corp. leases equipment from Abdul at a cost of $26,350 for the year but the IRS determines that the fair market value of the lease payments is $18,000 (Include the Medicare Contribution Tax on dividend and rental income.)?

Taxable income before lease payment =

Lease payment =

Entity tax =

After-tax entity earnings=

Abdul's tax on dividends =

Abdul's tax on lease payment =

Overall tax =