Question

Calculate the income tax rate for Amazon both USA and foreign and show formula for calculations. What is the tax rate? What effect will an increase in income of $2,000,000 have on Amazon?

Answer 1

Amazon has an effective tax rate at the end of 2015 of 63.33%. This means that if we increase the income by $2,000,000 we would have to pay 1,266,600 in taxes so we would only see a gain of 733,400. In 2015 they paid taxes in the amount of 950 million. The effects on the income statement from this increase would be an increase in net sales which would result in an increase in net income. for the balance sheet we would see an increase in cash by the $2,000,000 then we would see an increase in liabilities or equity for however we got the money. If it came from sales then we would decrease inventory or increase accounts payable (this would also increase the costs on the income statement). if it is equity we would have to increase the shareholders equity portion of the balance sheet. There are many ways that it can change the balance sheet based on how we are getting the increase in money.

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