Question

In fiscal 2011, Mass Corp. reported a statutory tax rate of 35.0%, an effective tax rate of 10.00% and a tax rate on operating profit of 15.00%. The 2011 income statement reported income tax expense of $1,406 million.

What did Mass Corp report as income before income tax expense that year?

	A.	$14,060 million
	B.	$29,050 million
	C.	$ 7,571 million
	D.	$28,071 million
	E.	None of the above

Answer 1

The statutory tax rate is the tax imposed by law whereas effective tax rate is what percentage of our income we actually pay in taxes. Tax on operating income does not account for non-operating income taxes payable and rebates.

On financial statement, total tax reported is based on the effective tax rate, which is the actual tax paid by company.

Income Tax Expense = $1,406 mil

Effective tax rate = 10%

Pretax Income * Effective Tax rate = Income Tax Expense

Pretax Income = $1,406/10%

Pretax income = $14,060 --> Answer is Option A.