Carrie, the president and sole shareholder of Energy Corporation, has earned a bonus of $100,000 for the current year. Because of the lower tax rates on qualifying dividends, Carrie is considering substituting a dividend for the bonus. Assume that the tax rates are 25% for Carrie and 21% for Energy Corporation. a. How much better off would Carrie be if she were paid a dividend rather than salary? b. How much better off would Energy Corporation be if it paid Carrie a salary rather than a dividend?

SWFT Comprehensive Vol 2020
43rd Edition
ISBN:9780357391723
Author:Maloney
Publisher:Maloney
Chapter19: Corporations: Distributions Not In Complete Liquidation
Section: Chapter Questions
Problem 48P
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Carrie, the president and sole shareholder of Energy Corporation, has earned a bonus of $100,000 for the current year. Because of the lower tax rates on qualifying dividends, Carrie is considering substituting a dividend for the bonus. Assume that the tax rates are 25% for Carrie and 21% for Energy Corporation.

a. How much better off would Carrie be if she were paid a dividend rather than salary?

b. How much better off would Energy Corporation be if it paid Carrie a salary rather than a dividend?

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