As of the close of the current year, Z Corp.holds assets with a fair market value of $1,000,000 and a book value of $800,000.Z has liabilities of $300,000, Z conducts all of its business in State A that imposes a franchise tax at a rate of 4 percent.What is Z's franchise tax liability for the current year?
A)$40,000
B)$32,000
C)$28,000
D)$20,000
E)None of the above

Question

Quizplus · Accepted Answer

The franchise tax liability is calculated based on the net worth of the company, which is assets minus liabilities. Here, the net worth is $1,000,000 (fair market value of assets) - $300,000 (liabilities) = $700,000. The tax rate is 4%, so the tax liability is 4% of $700,000 = $28,000.

As of the Close of the Current Year, Z Corp