Jamal Corporation,a C Corporation,projects That It Will Have Taxable Income

question 13

Essay

Jamal Corporation,a C corporation,projects that it will have taxable income of $500,000 before incurring any lease expenses.Jamal's tax rate is 34 percent.Ali,Jamal's sole shareholder,has a marginal tax rate of 33 percent on ordinary income and 15 percent on dividend income.Jamal always distributes all of its after-tax earnings to Ali.
a.What is the amount of the combined corporate and shareholder level tax on Jamal Corp.'s $500,000 pre-lease expense income if Jamal Corp.distributes all of its after-tax earnings to its sole shareholder Ali (ignore the 3.8% net investment income tax)?
b.What is the amount of the combined corporate and shareholder level tax on Jamal Corp.'s $500,000 pre-lease expense income if Jamal leases equipment from Ali at a cost of $120,000 for the year (ignore the 3.8% net investment income tax)?
c.What is the amount of the combined corporate and shareholder level tax on Jamal Corp.'s $500,000 pre-lease expense income if Jamal Corp.leases equipment from Ali at a cost of $120,000 for the year but the IRS determines that the fair market value of the lease payments is $80,000 (ignore the 3.8% net investment income tax)?

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Definitions:

Compounded Monthly

The process of calculating interest on both the initial principal and the accumulated interest from previous periods, applied on a monthly basis.

Check Register

A record of all checks written, deposits made, and balances in a checking account, used for managing finances.

Bank Statement

A summary of financial transactions that have occurred over a given period on a bank account.

Outstanding Checks

Checks that do not appear on the bank statement.