Which of the Following Statements Is CORRECT

question 45

Multiple Choice

Which of the following statements is CORRECT?

• A)Since companies can deduct dividends paid but not interest paid, our tax system favors the use of equity financing over debt financing, and this causes companies' debt ratios to be lower than they would be if interest and dividends were both deductible.
• B)Interest paid to an individual is counted as income for federal tax purposes and taxed at the individual's regular tax rate, which in 2014 could go up to 39.6%, but qualified dividends received were taxed at a maximum tax rate of 15% for individuals earning less than $400,000 and married taxpayers filing jointly earning less than $450,000.
• C)The maximum federal tax rate on corporate income in 2014 was 50%.
• D)Corporations obtain capital for use in their operations by borrowing and by raising equity capital, either by selling new common stock or by retaining earnings. The cost of debt capital is the interest paid on the debt, and the cost of the equity is the dividends paid on the stock. Both of these costs are deductible from income when calculating income for tax purposes.
• E)The maximum federal tax rate on personal income in 2014 was 50%.

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Definitions:

Saturday Evening Post

A longstanding American magazine that began publication in 1821, known for its journalism, fiction, and illustrations.

Carlos Bulosan

was a Filipino American author best known for his 1946 autobiography, "America Is in the Heart," depicting the Filipino immigrant experience.

Norman Rockwell

An American painter and illustrator known for his depictions of American culture, producing covers for The Saturday Evening Post magazine for nearly five decades.