Gopher Corporation reported taxable income of $500,000 this year. Gopher paid a dividend of $100,000 to its sole shareholder, Sven Anderson. The dividend meets the requirements to be a qualified dividend, and Sven is subject to a tax rate of 15 percent on the dividend. What is the income tax imposed on the corporate income earned by Gopher and the income tax on the dividend distributed to Sven

Answer and Explanation:

Given:

Taxable income = $500,000

Total dividend = $100,000

Tax rate on dividend = 15% = 15 / 100 = 0.15

Note: Question is incomplete , flat rate tax of 34% is missing.

Flat corporate tax rate = 34% = 34 / 100 = 0.34

Computation:

Corporate tax (Gopher Corporation) = Taxable income × Flat corporate tax rate

Corporate tax (Gopher Corporation) = $500,000 × 0.34

Corporate tax (Gopher Corporation) = $170,000

Income tax on the dividend = Total dividend × Tax rate on dividend

Income tax on the dividend =  $100,000 × 0.15  

Income tax on the dividend = $15,000

Total income tax = Corporate tax + Income tax on the dividend

Total income tax = $170,000 + 15,000

Total income tax = $185,000

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