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A company had a gross income of $7.5 million for the year in 2019. Depreciation in the year is estimated at $2 million. Operating expenses totaled $2.5 million. The effective tax rate is 32%. Estimate the income tax. Select choice closest to your answer. O a. $2,400,000 O b. $1,760,000 O C. $1,600,000 O d. $960,000

A company had a gross income of $7.5 million for the year in 2019. Depreciation in the year is estimated at $2 million. Operating expenses totaled $2.5 million. The effective tax rate is 32%. Estimate the income tax. Select choice closest to your answer. O a. $2,400,000 O b. $1,760,000 O C. $1,600,000 O d. $960,000

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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**Question:** A company had a gross income of $7.5 million for the year in 2019. Depreciation in the year is estimated at $2 million. Operating expenses totaled $2.5 million. The effective tax rate is 32%. Estimate the income tax. Select choice closest to your answer. - a. $2,400,000 - b. $1,760,000 - c. $1,600,000 - d. $960,000 **Explanation:** To estimate the income tax, first calculate the taxable income: 1. **Gross Income:** $7.5 million 2. **Less: Depreciation:** $2 million 3. **Less: Operating Expenses:** $2.5 million **Taxable Income = Gross Income - Depreciation - Operating Expenses** Taxable Income = $7.5 million - $2 million - $2.5 million = $3 million Next, apply the tax rate of 32% to the taxable income to estimate the income tax: **Income Tax = Taxable Income x Tax Rate** Income Tax = $3 million x 32% = $960,000 The closest choice is **d. $960,000**.
Transcribed Image Text:**Question:** A company had a gross income of $7.5 million for the year in 2019. Depreciation in the year is estimated at $2 million. Operating expenses totaled $2.5 million. The effective tax rate is 32%. Estimate the income tax. Select choice closest to your answer. - a. $2,400,000 - b. $1,760,000 - c. $1,600,000 - d. $960,000 **Explanation:** To estimate the income tax, first calculate the taxable income: 1. **Gross Income:** $7.5 million 2. **Less: Depreciation:** $2 million 3. **Less: Operating Expenses:** $2.5 million **Taxable Income = Gross Income - Depreciation - Operating Expenses** Taxable Income = $7.5 million - $2 million - $2.5 million = $3 million Next, apply the tax rate of 32% to the taxable income to estimate the income tax: **Income Tax = Taxable Income x Tax Rate** Income Tax = $3 million x 32% = $960,000 The closest choice is **d. $960,000**.
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