Vampire Company pays taxes of 15% on their first $20,000 of pretax income and 30% on any taxable income in excess of $20,000.The current pretax income is $50,000.What is the average tax rate?

Question

Quizplus · Accepted Answer

To find the average tax rate, we first need to calculate the total amount of taxes paid. For the first $20,000 of pretax income, Vampire Company pays 15% in taxes, which amounts to $3,000. For the remaining $30,000 of pretax income, Vampire Company pays 30% in taxes, which amounts to $9,000. Therefore, the total amount of taxes paid is $3,000 + $9,000 = $12,000.
The average tax rate is the total amount of taxes paid divided by the total pretax income. Therefore, the average tax rate is $12,000 / $50,000 = 0.24, or 24%. Thus, the best choice is C.

Vampire Company Pays Taxes of 15% on Their First $20,000