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As of 2015, ranches were taxed at 12 percent for income up to $47,000; at 17...

As of 2015, ranches were taxed at 12 percent for income up to $47,000; at 17 percent for income ranging from $47,000 to $75,000; at 30 percent for taxable income $75,000 to $98,000; at 40 percent for income from $98,000 to $106,000, and so on.

Suppose that you have revenues of $158,400 and operating expense of $53,800.

            (i)        What is the amount of the taxable income?          

a.

$158,400

b.

$73,220

c.

$212,200

d.

$104,600

                  e.   None of the answers are correct

(ii) How much tax is paid on the first $47,000 of the taxable income?

                        a. $5,640                                                       b. $6,900

                        c. $4,760                                                         d. $2,640

                        e. None of the answers are correct.

            (iii) How much tax is paid on the first $75,000 of the taxable income?

                        a. $4,760                                                         b. $3,360

                        c. $10,400                                                     d. $9,000

                        e. None of the answers are correct

            (iv) How much tax is paid on the total taxable income?

                        a.$104,600                                                     b. $19,940

                        c. $158,400                                                    d. $2,640

                        e. None of the answers are correct

            (v)       What is the average tax rate?

a.

10.92%

b.

19.06%

c.

9.40%

d.

27.23%

                  e.    None of the answers are correct

            (vi) What is the marginal tax rate?

               a.      12%                                                    b.         17%

               c.       30%                                                    d.       40%

                e.     None of the answers are correct

Solutions

Expert Solution

Revenues = $ 158400 and Operating Expense = $ 53800

(i) Taxable Income = 158400 - 53800 = $ 104600

(ii) Tax rate is 12 % on first $ 47000 of income

Therefore, Tax Liability upto $ 47000 = 47000 x 0.12 = $ 5640

(iii) Tax Rate on first $ 47000 is 12 % and between $ 47000-$ 75000 is 17%

Therefore, Tax Liability upto $ 75000 = (47000 x 0.12) + (75000 - 47000) x 0.17 = $ 10400

(iv) Tax Rate on first $ 47000 is 12% between $ 47000 and $ 75000 is 17 %, between $ 75000 and $ 98000 is 30 % and between $ 98000 and $ 106000 is 40 %

Tax Laibility on Total Taxable Income = 0.12 x 47000 + 0.17 x (75000 - 47000) + 0.3 x (98000 - 75000) + 0.4 x (104600 - 98000) = $ 19940

(v) Average Tax Rate = Total Tax Liability / Taxable Income = 19940 / 104600 = 0.1906 or 19.06 %

(vi) Marginal Tax Rate = Tax Rate Applicable to the Income Bracket in which the Taxable Income Lies = $ 104600 lies in the $ 98000 to $ 106000 bracket of 40% tax.

Hence, Marginal Tax Rate = 40 %

jeff jeffy answered 1 year ago
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