Exercise $19-26($Algorithmic$)($L$0.4,10)$

Rover Corporation would like to transfer excess cash to its sole shareholder, Aleshia, who is also an employee. Aleshia is in the $24\%$ tax

bracket, and Rover is subject to a $21\%$ rate. Because Aleshia's contribution to the business is substantial, Rover believes that a $$94,800$

bonus in the current year is reasonable compensation and should be deductible by the corporation. However, Rover is considering paying

Aleshia a $$94,800$ dividend because the tax rate on dividends is lower than the tax rate on compation.

Answer the following questions to determine whether Rover is correct in believing that a dividend is the better choice.

a$.$ Regarding taxes, which would benefit Aleshia the most?

The $$94,800$

because after taxes she would have:

$$ from the dividend and $

from the bonus.

b$.$ Regarding taxes, which would benefit Rover Corporation the most?

The $$25,000$

because it would save Rover $

in taxes.

c$.$ Considering the two parties together, which alternative would provide the most overall tax savings?

The $$94,800$

because when the overall effect to both the corporation and the shareholder are considered the net tax

savings is $