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Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $154,000 for the current year

Accounting Jan 19, 2021

Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $154,000 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 $ after taxes. If Kristen receives a dividend rather than salary, she would receive $ after taxes. Thus, she would be better off by receiving the 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 $ and the net after-tax cost for the dividend would be $ Therefore, Egret would be better off by $ if it paid the c. Assume Egret Corporation paid Kristen a salary bonus of $200,200 instead of a $154,000 dividend. If Egret Corporation were to pay Kristen a salary bonus of $200,200 instead of a $154,000 dividend, Kristen would receive $ after taxes. The bonus would cost Egret Corporation $ after taxes. d. What should kristen do? Both Egret Corporation and Kristen are better off with the

Expert Solution

Part 1)
 
The amount of payment received by Kristen under both scenarios is determined as below:
 
Net Bonus = Amount of Salary Bonus - Tax on Salary Bonus = 154,000 - 24%*154,000 = $117,040
 
Net Amount of Dividend = Dividend Amount - Tax on Dividend = 154,000 - 15%*154,000 = $130,900
 
Therefore, Kristen would be better off by $13,860 (130,900-117,040) more if she were paid a dividend.
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