Algernon, Inc., has a taxable income of $85,000. What is its tax bill? What is its average tax rate? Its marginal tax rate?

Question

Accepted Answer

From Table 2.3, we see that the tax rate applied to the first $50,000 is 15 percent; the rate applied to the next $25,000 is 25 percent, and the rate applied after that up to $100,000 is 34 percent. So Algernon must pay .15 × $50,000 + .25 × 25,000 + .34 × (85,000 – 75,000) = $17,150. The average tax rate is thus $17,150/85,000 = 20.18%. The marginal rate is 34 percent because Algernon’s taxes would rise by 34 cents if it had another dollar in taxable income.

TABLE 2.3

Corporate Tax Rates

Taxable Income Tax Rate
$ 0– 50,000 15% 50,001 – 75,000 25 75,001 – 100,000 34 100,001 – 335,000 39 335,001 – 10,000,000 34 10,000,001 – 15,000,000 35 15,000,001 – 18,333,333 38 18,333,334 + 35

TABLE 2.3

Corporate Tax Rates

Taxable Income Tax Rate
$ 0– 50,000 15% 50,001 – 75,000 25 75,001 – 100,000 34 100,001 – 335,000 39 335,001 – 10,000,000 34 10,000,001 – 15,000,000 35 15,000,001 – 18,333,333 38 18,333,334 + 35

Question 2.4: Algernon, Inc., has a taxable income of $85,000. What is its...

Related Answered Questions

This problem will give you some practice working with financial statements and figuring cash flow. Based on the following information for Mara Corporation, prepare an income statement for 2002 and balance sheets for 2001 and 2002. Next, following our U.S. Corporation ...

Verified Answer:

Suppose that U.S. had 200 million shares outstanding at the end of 2002. Based on the income statement in Table 2.2, what was EPS? What were dividends per share? ...

Verified Answer:

Verified Answer: