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Mariota Industries has sales of $380,080 and costs of $178,290. The company paid $32,390 in interest...

Mariota Industries has sales of $380,080 and costs of $178,290. The company paid $32,390 in interest and $14,500 in dividends. It also increased retained earnings by $69,626 during the year. If the company's depreciation was $19,820, what was its average tax rate?

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Answer #1

Solution:-

Sales of Mariota industries = $380,080

Costs = $178,290

Earnings before interest tax depreciation = $380,080 - $178,290

= $201,790

Depriciation = $19,820

Interest = $32,390

EBT = $201,790 - $19,820 - $32,390 = $149,580

Tax = ?

Earnings after tax = EBT - Tax

= $149,580 - Tax

But, Earnings after tax can be distributed as dividends and retained earnings = $14,500 + $69,626

= $84,126

$149,580 - Tax = $84,126

Tax = $149,580 - $84,126 = $65,454

Average tax rate = Tax amount / Earnings before tax

= $65,454 / $149,580

= 0.4375 or 43.75%

Hence the average tax rate is 43.75%

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