A Business Generates Profit of $100,000

question 12

Multiple Choice

A business generates profit of $100,000. The owner has a 37% marginal tax rate. What amount of corporate and individual income tax will be paid on this profit if the business is an S corporation and no income is distributed?

• A) Corporate tax, $21,000; individual tax, $37,000
• B) Corporate tax, $21,000; individual tax, $0
• C) Corporate tax, $0; individual tax, $37,000
• D) Corporate tax, $21,000; individual tax, $15,800

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Definitions:

Total Assets

The sum of everything of value owned by a business, including cash, securities, equipment, and real estate.

Liabilities

Liabilities are financial obligations or debts owed by a business or an individual to others, which must be settled over time through the transfer of economic benefits including money, goods, or services.

Stockholders' Equity

Represents the owners' residual interest in the assets of a corporation after deducting liabilities, often referred to as shareholders' equity or owner's equity.

Rights of Creditors

The legal entitlements of creditors to receive payments from borrowers or claimants against the assets of a debtor according to the terms of the debt agreement.