Danio Inc.'s income before taxes is $350,000 and its tax rate is 30%.Danio included $20,000 of interest from municipal bonds in the $350,000.There are no other book-tax differences.What is the effective tax rate for Danio Inc.?

Question

Quizplus · Accepted Answer

The municipal bond interest is tax-exempt, which means it should not be included in taxable income. Therefore, Danio's taxable income for tax purposes should be $330,000 ($350,000 - $20,000). The tax liability at a 30% rate would be $99,000 ($330,000 x 0.30). The effective tax rate would be $99,000 / $350,000 = 28%.

Danio Inc'S Income Before Taxes Is $350,000 and Its Tax Rate