Question

In fiscal 2016, Microsoft Corp. reported a statutory tax rate of 35% and an effective tax rate of approximately 15%. The 2016 income statement reported income tax expense of $2,953 million.What did Microsoft report as income before income tax expense that year?A. $14,826 millionB. $19,687 millionC. $27,054 millionD. $ 7,571 millionE. None of the above

Answer 1

B. $19,687 mil

Step-by-step explanation:

The statutory tax rate is the percentage imposed by law; the effective tax rate is the percentage of income actually paid by an individual or a company after taking into account tax breaks (including loopholes, deductions, exemptions, credits, and preferential rates).

Now, in our question, statutory tax rate is 35%, but effective tax rate is 15%. This implies, with the help of tax breaks or loopholes, company managed to pay only 15% of its income as taxes.

This 15% of income = $2,953 mil

Hence, pretax income = 2,953/15% = $19,686.67 mil = $19,687 mil