Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $30,000 for

Question:

Kristen, the president and sole shareholder of Egret Corporation, has earned a salary bonus of $30,000 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.

a. How much better off would Kristen be if she were paid a dividend rather than salary?

b. How much better off would Egret Corporation be if it paid Kristen a salary rather than a dividend?

c. If Egret Corporation pays Kristen a salary bonus of $35,000 instead of a $30,000 dividend, how would your answers to parts (a) and (b) change?

d. What should Kristen do? Summarize your conclusion in a two- to three paragraph e-mail to your instructor.

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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