Use the following information for the next 4 questions.
TNR Corporation is preparing its budgeted income statement for the month of August. Budgeted sales are $18,000. Cost of goods sold is twice the amount of operating costs, and operating costs plus cost of goods sold equals 40% of net income. Return on sales (net income / sales) is anticipated to be 50%. TNR does not have any nonoperating items on its income statement.
-TNR's expected income tax rate is
A) 37.5%
B) 30.0%
C) None of the above (but can be determined)
D) Cannot be determined
Muliple Choice from Study Guide

Question

Quizplus · Accepted Answer

The return on sales is 50%, meaning net income is $9,000 (50% of $18,000). Operating costs and cost of goods sold together are 40% of net income, which is $3,600. Since cost of goods sold is twice the operating costs, let operating costs be x and cost of goods sold be 2x. Thus, x + 2x = $3,600, so x = $1,200 and cost of goods sold is $2,400. The total expenses (operating costs + cost of goods sold) are $3,600, leaving a pre-tax income of $5,400 ($9,000 - $3,600). The tax rate is ($9,000 - $5,400) / $9,000 = 37.5%.

Use the Following Information for the Next 4 Questions