Ajax enterprises,Inc.has the following income statement items: sales of $48,250,000; operating expenses of $10,225,000; cost of goods sold of $32,025,000; and interest expense of $650,000.If the firm's income tax rate is 34%,what is the amount of the firm's income tax liability?
A)$1,665,000
B)$2,040,000
C)$1,819,000
D)$1,385,000

Question

Quizplus · Accepted Answer

First, we need to calculate the earnings before taxes (EBT) which is:
EBT = Sales - Cost of goods sold - Operating expenses - Interest expenses
EBT = $48,250,000 - $32,025,000 - $10,225,000 - $650,000
EBT = $5,350,000

Next, we need to calculate the income tax liability by multiplying the EBT by the tax rate: 
Income tax liability = EBT x Tax rate
Income tax liability = $5,350,000 x 0.34
Income tax liability = $1,819,000

Therefore, the answer is (C) $1,819,000.

Ajax Enterprises,Inc