Question

Winston Industries had sales of $843,800 and costs of $609,900. The firm paid $38,200 in interest and $18,000 in dividends. It also increased retained earnings by $62,138 for the year. The depreciation was $76,400. What is the average tax rate?

Answer 1

Answer:

32.83%

Explanation:

Given:

Total sales = $843,800

cost = $609,900

Amount paid in interest = $38,200

Dividends paid = $18,000

Increased in retained earnings = $62,138

Depreciation = $76,400

Now,

the earning before taxes = Total sales - Cost - Interest paid - Depreciation

or

the earning before taxes = $843,800 - $609,900 - $76,400 - $38,200

or

the earning before taxes = $119,300

And,

the net income = Dividends paid + Increased in retained earnings

the net income = $18,000 + 62,138

or

the net income = $80,138

Thus,

the tax paid = earning before taxes - net income = $119,300 - $80,138

or

the tax paid =  $39,162

Hence,

the tax rate = $\frac{\textup{Tax paid}}{\textup{Earnings before tax}}\times100$

or

the tax rate = $\frac{39,162}{119,300}\times100$

or

The tax rate = 32.83%