Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 11 percent annual before-tax return on a $350,000 investment. Andrea’s marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. Further, she is eligible to claim the full deduction for qualified business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.) a. How much cash after taxes would Andrea receive from her investment in the first year if SHO is organized as either an LLC or a C corporation?   After-tax cash flowLLC C corporation

Question
Asked Feb 26, 2020
47 views

 

Andrea would like to organize SHO as either an LLC (taxed as a sole proprietorship) or a C corporation. In either form, the entity is expected to generate an 11 percent annual before-tax return on a $350,000 investment. Andrea’s marginal income tax rate is 35 percent and her tax rate on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, Andrea will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9 percent for the additional Medicare tax. Further, she is eligible to claim the full deduction for qualified business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend if it is formed as a C corporation. (Do not round intermediate calculations and round your final answers to the nearest whole dollar.)

 

a. How much cash after taxes would Andrea receive from her investment in the first year if SHO is organized as either an LLC or a C corporation?

 
 
  After-tax cash flow
LLC  
C corporation  
check_circle

Expert Answer

Step 1

Net income before tax = $350,000 * 11%

                                        = $38,500

Now, there are two alternatives for Andrea to organise SHO as either an LLC or as a C Corporation.

If it is LLC:

Accounting homework question answer, step 1, image 1

 

Hence, cash after tax will be $23,562

Formulae used to show below:

Accounting homework question answer, step 1, image 2

 

...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: MODULE 5 8-7 DISPOSAL OF ASSET Please read the problem below and provide the correct answer along wi...

A: Click to see the answer

question_answer

Q: #6. Better Publications, sold annual subscriptions to their magazine for $42,000 in December, 2016. ...

A: Prepare adjusting entry at January 31, 2017.

question_answer

Q: Hi attached is a problem I am having trouble with. Differenacting income statements from variable co...

A: Under the Variable Costing method, variable costs are shown separately to arrive at the value of Con...

question_answer

Q: Can you please explain how I would find the amounts after the stock dividend was declared and closin...

A: Dividends: This is the amount of cash distributed to stockholders by a company out its earnings, acc...

question_answer

Q: Damarcus is a 50 percent owner of Hoop (a business entity). In the current year, Hoop reported a $10...

A: C corporation is a corporation which is entitled to pay taxes separately from its owners. The loss o...

question_answer

Q: Rogers Company reported net income of $42,431 for the year. During the year, accounts receivable inc...

A: Statement of cash flows: This statement reports all the cash transactions which are responsible for ...

question_answer

Q: eBook Show Me How Calculator Print Item Entries for stock dividends Instructions Chart of Accounts J...

A: Click to see the answer

question_answer

Q: Dane ASA bothpurchases and constructs various equipment it uses in its operations. The followingitem...

A: Compute the total cost for each of these two types of equipment. If an item is notcapitalized as a c...

question_answer

Q: The table contains the Sales estimates for the next year. The Purchases are 55% of Sales.  Purchase...

A: Outflow of cash refers to the cash going out of the business. It includes the amount of money paid b...