04-48 (LO 04-3) (Algo) wing information applies to the qu puld like to organize SHO as eithe en. In either form, the entity is expe a $320,000 investment. Andrea's nds and capital gains is 15 perçent
04-48 (LO 04-3) (Algo) wing information applies to the qu puld like to organize SHO as eithe en. In either form, the entity is expe a $320,000 investment. Andrea's nds and capital gains is 15 perçent
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Required information
Problem 04-48 (LO 04-3) (Algo)
[The following information applies to the questions displayed below.]
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 10 percent annual before-tax
return on a $320,000 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, she
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 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.
Problem 04-48 Part b (Algo)
b. What is the overall tax rate on SHO's income in the first year if SHO is organized as an LLC or as a C corporation?
(Round intermediate calculations to the nearest whole dollar. Round your final answers to 2 decimal places.)
Answer is not complete.
Overall Tax Rate
LLC
C corporation
35.85
%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F73907ca2-1228-44b0-96a3-eb2affd82e48%2F725b3f29-3f45-4711-bc24-b0531ef167e9%2Fh9pl14_processed.png&w=3840&q=75)
Transcribed Image Text:Required information
Problem 04-48 (LO 04-3) (Algo)
[The following information applies to the questions displayed below.]
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 10 percent annual before-tax
return on a $320,000 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, she
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 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.
Problem 04-48 Part b (Algo)
b. What is the overall tax rate on SHO's income in the first year if SHO is organized as an LLC or as a C corporation?
(Round intermediate calculations to the nearest whole dollar. Round your final answers to 2 decimal places.)
Answer is not complete.
Overall Tax Rate
LLC
C corporation
35.85
%
![!
Required information
Problem 04-48 (LO 04-3) (Algo)
[The following information applies to the questions displayed below.]
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 10 percent annual before-tax
return on a $320,000 investment. Andrea's marginal income tax rate is 35 percent and her tax rate
on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment
income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, she
will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9
percent for the additional Medicare tax. Further, she is eligible to claim the deduction for qualified
business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend
if it is formed as a C corporation.
Problem 04-48 Part a (Algo)
a. How much cash after taxes would Andrea receive from her investment in the first year if SHO is organized as ei
an LLC or a C corporation? (Round intermediate calculations and your final answers to the nearest whole dollar
Answer is complete but not entirely correct.
After-tax cash
flow
LLC
2$
22,067 X
C corporation
20,527](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F73907ca2-1228-44b0-96a3-eb2affd82e48%2F725b3f29-3f45-4711-bc24-b0531ef167e9%2Fwjq0128_processed.png&w=3840&q=75)
Transcribed Image Text:!
Required information
Problem 04-48 (LO 04-3) (Algo)
[The following information applies to the questions displayed below.]
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 10 percent annual before-tax
return on a $320,000 investment. Andrea's marginal income tax rate is 35 percent and her tax rate
on dividends and capital gains is 15 percent. Andrea will also pay a 3.8 percent net investment
income tax on dividends and capital gains she recognizes. If Andrea organizes SHO as an LLC, she
will be required to pay an additional 2.9 percent for self-employment tax and an additional 0.9
percent for the additional Medicare tax. Further, she is eligible to claim the deduction for qualified
business income. Assume that SHO will pay out all of its after-tax earnings every year as a dividend
if it is formed as a C corporation.
Problem 04-48 Part a (Algo)
a. How much cash after taxes would Andrea receive from her investment in the first year if SHO is organized as ei
an LLC or a C corporation? (Round intermediate calculations and your final answers to the nearest whole dollar
Answer is complete but not entirely correct.
After-tax cash
flow
LLC
2$
22,067 X
C corporation
20,527
Expert Solution
Step 1
LLC refers to the Limited liability corporation refers to the type of company that has features of both partnership and corporation.
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