Pearls, Inc. had sales in 2013 of $2.1 million. The common stockholders received $600,000 in cash dividends

Pearls, Inc. had sales in 2013 of $2.1 million. The common stockholders received $600,000 in cash dividends.  Interest totaling $150,000 was paid on outstanding debts. Operating expenses totaled $300,000, and cost of goods sold was $500,000.  What is the tax liability of Pearls, Inc.? 2013 U.S. Corporate tax rates are shown below:

Taxable Income	Marginal Tax Rate
$0-$50,000	15%
$50,001-$75,000	25%
$75,001-$100,000	34%
$100,001-$335,000	39%
$335,001-$10,000,000	34%
$10,000,001-$15,000,000	35%
$15,000,001-$18,333,333	38%
Over $18,333,333	35%

Answer:  Pearls Taxable Income

Sales                                                          $2,100,000

Less:

Cost of goods sold                                    $500,000

Operating expenses                                  300,000

Earnings before interest & taxes       $1,300,000

Interest expense                                          150,000

Taxable income                                       1,150,000

Total taxes owed                                      $391,000

Taxes on operating earnings = (.15)(50,000) + (.25)(25,000) + (.34) 25,000) + (.39)(235,000) +.(34)(735,000)= 7,500 + 6,250 + 8500 + 91,650+277,100 = $391,000 or

                                Because taxable income is over $335,000

                                taxes can be computed 1,150,000 × .34 =

                                $391,000