Assume That LoPine Ltd,a US-Based Company (Which Has a Classical

question 12

Multiple Choice

Assume that LoPine Ltd,a US-based company (which has a classical taxation system) ,borrows $10 million at an interest rate of 15 per cent and uses the funds to repurchase shares worth $10 million.Further,assume that the company tax rate is 35 per cent,the marginal income tax rate is 30 per cent and the average tax rate on equity income is 12 per cent.Calculate the net tax savings per year.

• A)$192 000
• B)$182 000
• C)$188 000
• D)$172 000

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Definitions:

Adjusting Entry

A journal entry made at the end of an accounting period to allocate income and expenditures to the correct period.

Revenue Accounts

Accounts that track the income earned by a company from its normal business operations or other activities.

Salaries and Wages Payable

Obligations due to employees for completed work that hasn't been compensated yet.

Payroll

The total amount of wages and salaries paid by a business to its employees for a set period of time.