Maroon Company Had $100,000 Net Profit from Operations in 2008

question 35

Essay

Maroon Company had $100,000 net profit from operations in 2008 and paid Bobbie,its sole shareholder,a dividend of $77,750 ($100,000 net profit - $22,250 corporate tax).Assume that Bobbie is in the 35% marginal tax bracket.Would Bobbie's tax situation be better or worse if Maroon Company were a proprietorship and Bobbie withdrew $77,750 from the business during the year? Explain.

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Definitions:

Tax Rate

is the percentage at which an individual or corporation is taxed by the government.

Consolidation Entry

An accounting entry made to consolidate the financial statements of a parent company with those of its subsidiaries.

Accrued Interest

Interest that has been earned but not yet received or recorded as income by the end of the accounting period.

Tax Rate

The percentage at which an individual or corporation is taxed, varying by income level, jurisdiction, and type of tax.