Answer:
Effective tax rate =28.50 %
Explanation:
given data
Net Income before taxes = $2,00,000
Interest revenue = $20,000
Life insurance Premium = $10,000
tax rate = 30%
to find out
Fern's effective tax rate
solution
first we get here Taxable Income that is express as
Taxable Income = Net Income before taxes + Life insurance Premium - Interest revenue ........................1
put here value we get
Taxable Income = $2,00,000 + $10,000 - $20,000
Taxable Income = $190000
so
Income tax Liability will be
Income tax Liability = Taxable Income × Tax rate .....................2
Income tax Liability = $190000 × 30%
so Effective tax rate will be
Effective tax rate = ![\frac{Income\ tax\ Liability}{Net\ Income}](https://tex.z-dn.net/?f=%5Cfrac%7BIncome%5C%20tax%5C%20Liability%7D%7BNet%5C%20Income%7D)
Effective tax rate = ![\frac{57000}{200000}](https://tex.z-dn.net/?f=%5Cfrac%7B57000%7D%7B200000%7D)
Effective tax rate =28.50 %