Mr. Donald's and Burger Queen are two competitor firms in the fast food industry. Mr.

Donald's had earnings before interest and taxes of $8,200,000 and Burger Queen had

earnings before interest and taxes of $9,500,000. Mr. Donald's had $800,000 in interest

income for the year, but no interest expense. Burger Queen had $800,000 in interest

expense for the year, but no interest income.

a. Calculate taxable income and after-tax earnings for each of the companies using a

34% tax rate.

b. Which firm paid more taxes? Explain why.

In 2019 Elemo Rent a Car reported ordinary income of $14.2 million. In that same year the

company had capital gains of $770,000, interest income of $490,000, and it paid $500,000

in interest expense. Calculate Elemo's:

a. Taxable income

b. Taxes due (use a 34% tax rate)

c. Earnings after taxes