Question

Data are given below on the adjusted gross income x and the amount of itemized deductions taken by taxpayers. Data were reported in thousands of dollars. With the estimated regression equation  = 4.68 + .16x, the point estimate of a reasonable level of total itemized deductions for a taxpayer with an adjusted gross income of $52.5 thousand is $13.08 thousand.

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

In the questions that follow, enter the dollar amounts requested. For example, if the regression results provide a value of 11.74 thousand, enter 11,740 as the dollar amount in the box. Use Table 1 of Appendix B.

1. Develop a 95% confidence interval for the amount of total itemized deductions for all taxpayers with an adjusted gross income of $52,500 (to the nearest whole number).
   $ (  ,   )
   
2. Develop a 95% prediction interval for the amount of total itemized deductions for a particular taxpayer with an adjusted gross income of $52,500 (to the nearest whole number).
   $ (  ,   )
   
3. If the particular taxpayer referred to in part (b) claimed total itemized deductions of $20,400, would the IRS agent's request for an audit appear to be justified?
   
4. Use your answer to part (b) to give the IRS agent a guideline as to the amount of itemized deductions that would suggest an audit for a taxpayer with an adjusted gross income of $52,500.
   
   Any deductions exceeding the upper limit of $   could suggest an audit.

Answer 1

SOLUTION;-

By Using Excel sheet....