Question

Arreaga Corp had a 20 percent tax rate. Given the following pre-tax amounts, what would be the income tax expense reported on the face of the income statement?

                  Sales revenue $1,000,000

                  Cost of goods sold $600,000

                  Salaries and wages expense $80,000

                  Depreciation expense $110,000

                  Dividend revenue $90,000

                  Utilities expense $10,000

                  Discontinued operations loss (net of taxes) $100,000

                  Interest expense $20,000

Select one:

a. $16,000

b. $34,000

c. $36,000

d. $54,000

Answer 1

Answer: d. $54,000

.

.

Sales revenue		$1,000,000
Operating expenses
Cost of goods sold	$600,000
Salaries and wages expense	$80,000
Depreciation expense	$110,000
Utilities expense	$10,000
Total operating expenses             [$600,000 + $80,000 + $110,000 + $10,000]		$800,000
Operating income                        [$1,000,000 - $800,000]		$200,000
Other revenues and expenses:
Dividend revenue	$90,000
Interest expense	($20,000)	$70,000
Income Before Income Taxes          [$200,000 + $70,000]		$270,000
Income tax expense                         [Income Before Income Tax x income tax rate = $270,000 x 20%]		$54,000