Shamberly Corp. is a calendar year, accrual basis corporation that has been in business for 30 years. The following Income and expenses appear on Shamberly's records for the year ended December 31 Year 3. $1,000,000 400,000 Revenues and Gains Gross sales Dividends : 10%-owned domestic corporation ABC Corp. Interest California State bonds U.S. treasury bonds Gain on sale of ABC stock Key person life insurance proceeds Total 15,000 35,000 95,000 380,000 $ 1,845,000 Costs and Expenses Cost of goods sold Salaries and wages Depreciation Meals expense (restaurants) Key person life insurance premiums State income taxes Federal income taxes Rent, Utilities, etc Other expenses Total Net Income 650,000 420,000 220,000 20,000 15,000 10,000 45,000 200,000 50,000 1,630,000 215 000 1. Calculate Shamberly's taxable income (or net operating loss) for the year and analyze the impact of the dividends- received deduction on Shamberly's taxable income for the year. (Amounts to be deducted should be indicated by a minus sign.) Answer is complete but not entirely correct. Revenues and Gains Amount Gross sales $ 1,000,000 Dividends 10% owned domestic corporation ABC Corp 400.000 Interest on California State bonds $ 15,000 Interest on US treasury bonds 35,000 Gain on sale of ABC stock 95,000 Key person life insurance proceeds 300 000 Total $ 1,845,000 Costs and Expenses Cost of goods sold 650,000 Salaries and wages 420,000 Depreciation 220,000 Meals expense (restaurants) 20.000 Key person te insurance premiums 15,000 State income taxes 10.000 Federal income taxes 45.000 Rent, Utilities, etc 200 000 420,000 Salaries and wages Depreciation Meals expense (restaurants) Key person life insurance premiums State income taxes Federal income taxes Rent, Utilities, etc Other expenses Total Taxable income before DRD Less Dividends received deduction Taxable income (or Net operating loss) 220,000 20,000 15,000 10,000 45,000 200,000 200,000 $ 1,780,000 65,000 (107.500) $ 42,500 2. Shamberly Corp is contemplating making a charitable contribution that would be deductible in Year 3. It would like to give the minimum amount necessary to maximize its tax benefit from the contribution deduction for Year 3. Analyze the effect this contribution will have on Shamberly's taxable income for Year 3 (Amounts to be deducted should be indicated by a minus sign.) Answer is complete but not entirely correct. Texable income before charitable contribution $ 200.000 Less Charitable contribution 107,500 Taxable income before DRD 307,500 Less Dividends-received deduction 200.000 Taxable income (or Net operating loss) $ 507,500
