What is the amount of accumulated earnings tax payable for ABC Corporation given its excess accumulations?

What is the amount of accumulated earnings tax payable for ABC Corporation given its excess accumulations?

• A. $10,200
• B. $0
• C. $28,200
• D. $16,200

Answer: (D)

The accumulated earnings tax is imposed on corporations that accumulate earnings beyond the reasonable needs of the business. This tax is designed to prevent corporations from avoiding the personal income tax that shareholders would incur on dividends by simply retaining earnings instead. In the context of this question, to determine the amount of accumulated earnings tax payable by ABC Corporation, you need to evaluate the corporation's excess accumulations. The taxable amount typically follows a specific formula based on the retained earnings that exceed what the IRS considers necessary for business operations, usually calculated at a flat rate (currently 20%) on the excess amount. For instance, if ABC Corporation had a certain level of excess earnings above the threshold deemed necessary for business needs, it would calculate the tax at the applicable rate. If the calculated amount based on these excess accumulations turns out to be $16,200, that indicates the corporation must pay this amount in accumulated earnings tax. Thus, the answer is valid as it aligns with the corporation's excess accumulation calculations and the tax rate applied to that excess.

The accumulated earnings tax is imposed on corporations that accumulate earnings beyond the reasonable needs of the business. This tax is designed to prevent corporations from avoiding the personal income tax that shareholders would incur on dividends by simply retaining earnings instead.

In the context of this question, to determine the amount of accumulated earnings tax payable by ABC Corporation, you need to evaluate the corporation's excess accumulations. The taxable amount typically follows a specific formula based on the retained earnings that exceed what the IRS considers necessary for business operations, usually calculated at a flat rate (currently 20%) on the excess amount.

For instance, if ABC Corporation had a certain level of excess earnings above the threshold deemed necessary for business needs, it would calculate the tax at the applicable rate. If the calculated amount based on these excess accumulations turns out to be $16,200, that indicates the corporation must pay this amount in accumulated earnings tax.

Thus, the answer is valid as it aligns with the corporation's excess accumulation calculations and the tax rate applied to that excess.