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Fern Co. has net income, before taxes, of $200,000, including $20,000 interest revenue from municipal bonds and $10,000 paid for officers' life insurance premiums where the company is the beneficiary. The tax rate for the current year is 30%. What is Fern's effective tax rate?

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Respuesta :

Answer:

Effective tax rate =28.50 %

Explanation:

given data

Net Income before taxes = $2,00,000  

Interest revenue = $20,000  

Life insurance Premium = $10,000

tax rate = 30%

to find out

Fern's effective tax rate

solution

first we get here Taxable Income that is express as

Taxable Income = Net Income before taxes + Life insurance Premium - Interest revenue   ........................1

put here value we get

Taxable Income = $2,00,000 + $10,000 - $20,000

Taxable Income = $190000

so

Income tax Liability will be

Income tax Liability = Taxable Income × Tax rate  .....................2

Income tax Liability = $190000  × 30%

so Effective tax rate will be

Effective tax rate = [tex]\frac{Income\ tax\ Liability}{Net\ Income}[/tex]

Effective tax rate = [tex]\frac{57000}{200000}[/tex]

Effective tax rate =28.50 %

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