Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $264,500 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus. Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. Round your answers to nearest dollar, if required. a. How much better off would Kristen be if she were paid a dividend rather than salary? If Kristen were paid a bonus, she would receive s would receive 201,020 after taxes. If Kristen receives a dividend rather than salary, she 224,825✔ after taxes. Thus, she would be better off by receiving the dividend✔ Feedback Check My Work b. How much better off would Egret Corporation be if it paid Kristen a salary rather than a an a dividend? The net after-tax cost of the bonus for Egret Corporation would be t be 7,975 X Therefore, Egret would be better off by s Feedback Check My Work 208,955 and the net after-tax cost for the dividend would 7,975 X if it paid the bonus c. Assume Egret Corporation paid Kristen a salary bonus of $343,850 instead of a $264,500 dividend. If Egret Corporation were to pay Kristen a salary bonus of $343,850 instead of a $264,500 dividend, Kristen would receive 261,326✔ after taxes. The bonus would cost Egret Corporation s 271,642 after taxes.
Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $264,500 for the current year. Because of the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus. Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. Round your answers to nearest dollar, if required. a. How much better off would Kristen be if she were paid a dividend rather than salary? If Kristen were paid a bonus, she would receive s would receive 201,020 after taxes. If Kristen receives a dividend rather than salary, she 224,825✔ after taxes. Thus, she would be better off by receiving the dividend✔ Feedback Check My Work b. How much better off would Egret Corporation be if it paid Kristen a salary rather than a an a dividend? The net after-tax cost of the bonus for Egret Corporation would be t be 7,975 X Therefore, Egret would be better off by s Feedback Check My Work 208,955 and the net after-tax cost for the dividend would 7,975 X if it paid the bonus c. Assume Egret Corporation paid Kristen a salary bonus of $343,850 instead of a $264,500 dividend. If Egret Corporation were to pay Kristen a salary bonus of $343,850 instead of a $264,500 dividend, Kristen would receive 261,326✔ after taxes. The bonus would cost Egret Corporation s 271,642 after taxes.
Chapter19: Corporations: Distributions Not In Complete Liquidation
Section: Chapter Questions
Problem 48P
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Transcribed Image Text:Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $264,500 for the current year. Because of
the lower tax rates on qualifying dividends, Kristen is considering substituting a dividend for the bonus.
Assume that the tax rates are 24% for Kristen and 21% for Egret Corporation. Round your answers to nearest dollar, if required.
a. How much better off would Kristen be if she were paid a dividend rather than salary?
If Kristen were paid a bonus, she would receive s 201,020✔ after taxes. If Kristen receives a dividend rather than salary, she
would receive 224,825✔ after taxes. Thus, she would be better off by receiving the dividend
Feedback
Check My Work
b. How much better off would Egret Corporation be if it paid Kristen a salary rather than a dividend?
The net after-tax cost of the bonus for Egret Corporation would be s
7,975 X Therefore, Egret would be better off by s
be s
Check My Work
208,955✔ and the net after-tax cost for the dividend would
7,975 X if it paid the bonus
c. Assume Egret Corporation paid Kristen a salary bonus of $343,850 instead of a $264,500 dividend.
If Egret Corporation were to pay Kristen a salary bonus of $343,850 instead of a $264,500 dividend, Kristen would receive
261,326✔after taxes. The bonus would cost Egret Corporation
271,642 ✔ after taxes.
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