Question

Fern Co. has net income, before taxes, of $200,000, including $20,000 interest revenue from municipal bonds and $10,000 paid for officers' life insurance premiums where the company is the beneficiary. The tax rate for the current year is 30%. What is Fern's effective tax rate?

27.0%

31.5%

30.0%

28.5%

Answer 1

	Correct answer is: 28.50%
	Workings:
	Taxable Income:
	Net Income before taxes	=	$ 2,00,000
Less:	Interest revenue	=	$    20,000
Add:	Officer's Life insurance Premium	=	$    10,000
(a)	Taxable Income	=	$ 1,90,000
(b)	Tax rate	=	30%
(a) X (b)	Income tax Liability	=	$    57,000
	Effective tax rate	=	Income tax Liability / Net Income
		=	$57,000 / $2,00,000
		=	28.50%