Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

The textbook example was really no help, I do not understand what to do with these numbers Problem 18-46 (LO. 7) Refer to Example 42

image text in transcribed

The textbook example was really no help, I do not understand what to do with these numbers

Problem 18-46 (LO. 7) Refer to Example 42 in text Section 18-5e. Albert owns 100% of A Corporation, Betty is the sole proprietor of B Company, and Cal is the sole proprietor of C Company. Each business generated $500,000 of taxable income and before-tax cash flow. A Corporation and B Company produce a product, but c Company provides accounting services. A Corporation will distribute all of its after-tax Income to Albert. All three owners face a 37% marginal tax rate on ordinary Income. B Company qualifies for the $ 199A deduction, but c Company does not because it provides accounting services and its taxable Income exceeds the threshold for that deduction. Assume the tax rate applied to dividend Income equals the top 20% net long-term capital gain rate plus the 3.8% net investment Income tax rate. The corporate tax rate is 21% and 5 199A deduction is 20%. what will be the values of A Corporation, B Company, and C Company after three years? Assume that each business can relnvest its after- tax cash flow back into the business and that there is no unrealized appreciation of their assets. If required, round your answers to the nearest dollar. A Corporation B Company c Company Initial Investment $5,000,000 $5,000,000 $5,000,000 Taxable income to owners in year 1 3,009,900 X 3,950,000 X After-tax cash flow for year 1 2,158,900 X 3,009,900 X Investment at end of year 1 0 X 0 X 0 Taxable income to owners in year 2 0 X 0 X 0 X After-tax cash flow for year 2 0 X 0 X 0 X Investment at end of year 2 0 X 0 X 0 X Taxable income to owners in year 3 0 X 0 X 0 X After-tax cash flow for year 3 OX 0 X 0 Investment at end of year 3 0 X $ 0 X $ ox

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions