Mr Longwood and Mrs Kennett Are the Equal Shareholders in LK

question 60

Essay

Mr Longwood and Mrs Kennett are the equal shareholders in LK Corporation. Both shareholders have a 37 percent marginal tax rate on ordinary income. LK's financial records show the following:
Gross income from sales $ 875,000
Operating expenses (420,000 )
Interest paid on debt to shareholders (75,000 )
Dividend distributions:
Mr Longwood (50,000 )
Mrs Kennett (50,000 )
a. Compute the combined tax cost for LK, Mr Longwood, and Mrs Kennett attributable to LK's operations.
b. How would your computation change if the interest on the shareholder debt was $175,000 and LK paid no dividends?

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Definitions:

Life on Earth

The collective existence of all organisms, both past and present, that inhabit our planet, adapting and evolving over billions of years.

Gravity

A fundamental force of nature that causes all things with mass or energy to be attracted to one another, keeping planets in orbit around stars and forming the structure of the universe.

One-Way Flow

A system or process in which resources or materials move in a single direction without recirculation or return to the starting point.

Limiting Factor

An environmental condition that restricts the growth, abundance, or distribution of an organism or a population within an ecosystem.