In: Statistics and Probability
CAN YOU PLEASE ANSWER THESE USING EXCEL
To the Internal Revenue Service, the reasonableness of total itemized deductions depends on the taxpayer’s adjusted gross income. Large deductions, which include charity and medical deductions, are more reasonable for taxpayers with large adjusted gross incomes. If a taxpayer claims larger than average itemized deductions for a given level of income, the chances of an IRS audit are increased. Data (in thousands of dollars) on adjusted gross income and the average or reasonable amount of itemized deductions follow:
Adjusted Gross Income ($1000s) |
Reasonable Amount of Itemized Deductions ($1000s) |
22 |
9.6 |
27 |
9.6 |
32 |
10.1 |
48 |
11.1 |
65 |
13.5 |
85 |
17.7 |
120 |
25.5 |
a.) Develop a scatter diagram for these data with adjusted gross income as the independent variable.
b.) Use the least squares method to develop the estimated regression equation.
c.) Estimate a reasonable level of total itemized deductions for a taxpayer with an adjusted gross income of $52,500. If this taxpayer claimed itemized deductions of $20,400, would the IRS agent’s request for an audit appear justified? Explain.
d.) Write the regression equation
e.) Interpret the regression constant and regression coefficient
f.) Forecast a value for the dependent variable, test the significant of the regression coefficient at an alpha level of .05, test the overall significant of the regression model, and interpret the coefficient of determination.
Solution-A:
Select the data>
Go to
Insert>scatter chart
Click on plus
Add on axis titles
Click on one observation
You will get
Reasonable Amount of Itemized Deductions=0.1613*Adjusted Gross Income+4.6768
slope=0.1613
y intercept=4.6768
SolutionB:
Data >Data analysis >Regression
SUMMARY OUTPUT | ||||||
Regression Statistics | ||||||
Multiple R | 0.977174 | |||||
R Square | 0.954869 | |||||
Adjusted R Square | 0.945843 | |||||
Standard Error | 1.371565 | |||||
Observations | 7 | |||||
ANOVA | ||||||
df | SS | MS | F | Significance F | ||
Regression | 1 | 199.0083 | 199.0083 | 105.7884 | 0.000149 | |
Residual | 5 | 9.405958 | 1.881192 | |||
Total | 6 | 208.4143 | ||||
Coefficients | Standard Error | t Stat | P-value | Lower 95% | Upper 95% | |
Intercept | 4.67675 | 1.033394 | 4.52562 | 0.006251 | 2.020326 | 7.333175 |
Adjusted Gross Income | 0.16131 | 0.015683 | 10.28535 | 0.000149 | 0.120994 | 0.201626 |
You will get
Reasonable Amount of Itemized Deductions=0.1613*Adjusted Gross Income+4.6768
slope=0.1613
y intercept=4.6768
Solution-c:
we have
Reasonable Amount of Itemized Deductions=0.1613*Adjusted Gross Income+4.6768
=0.1613*52.5+4.6768
=13.14505
=13.14505*1000
= 13145.05
itemized deductions of $20,400 is not reasonable
since predicted value is $13,145 only
d.) Write the regression equation
Reasonable Amount of Itemized Deductions=0.1613*Adjusted Gross Income+4.6768