Use the information below to answer the following questions. Each question is to be considered separately.
The income statement of Berrima Barbed Wire Ltd is:
$ \begin{array}{lr} & \$ \ \text { Revenue } & 22,000 \ \text { Expense } & \underline{12,000} \ \text { Profit before income tax } & 10,000 \ \text { Income tax expense }(30 \%) & \underline{3,000} \ \text { Net profit } & \underline{7,000}\end{array} $
-If the rate of income tax were raised to 40%,what would be the effect on net profit?
A) It would increase by $700.
B) It would decrease by $700.
C) It would increase by $1000.
D) It would decrease by $1000.

Question

Quizplus · Accepted Answer

Currently, the income tax expense is $3,000, which is 30% of the profit before income tax of $10,000. 
If the rate of income tax were raised to 40%, the income tax expense would increase to $4,000 (40% of $10,000). 
Therefore, the net profit would decrease from $7,000 to $6,000 ($10,000 - $4,000). This represents a decrease of $1,000. Hence, the correct answer is D.

Use the Information Below to Answer the Following Questions -If the Rate of Income Tax Were Raised to 40%,what