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 $97,200 bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering paying Aleshia a $97,200 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 $97,200

bonus

because after taxes she would have $fill in the blank 2 from the dividend and $fill in the blank 3 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 in taxes.

c. Considering the two parties together, which alternative would provide the most overall tax savings? The $97,200

bonusdividendbonus

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