Atomic Corporation Is Enjoying a Very Profitable Year

question 82

Multiple Choice

Atomic Corporation is enjoying a very profitable year.The board of directors is considering paying either a bonus to the president of the corporation or an extra dividend to the shareholder.Shinil is both the president and the 100% shareholder.Which of the following statements is generally correct with respect to closely held corporations in Atomic's position?

• A)For tax purposes,the corporation will prefer to pay the bonus.
• B)For tax purposes,the corporation will prefer to pay the dividend.
• C)The owner-manager will only be taxed on the bonus,not the dividend.
• D)The corporation's taxable income will be impacted in the same manner by both the bonus and the dividend payments.

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Definitions:

Unit Variable Expenses

Costs that vary directly with the volume of production or sales per unit.

Fixed Expenses

Costs that do not change with the level of production or sales volume, such as rent and salaries.

Variable Expenses

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.

Net Income

The profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.