Question

reed corporation reports year 7 sales of $332 million, income before income taxes of $97.8 million and tax expense of $28.7 million. if sales are projected to increase by 4% next year, projected tax expense for year 8 will be: select one: a. $27.1 million b. there is not enough information to determine the amount c. $26.1 million d. $29.8 million e. $28.7 million

Answer 1

To calculate the projected tax expense for Year 8, we need to consider the tax rate of Reed Corporation, which is 34%. We can then calculate the projected tax expense by multiplying the projected Year 8 income by 34%. Therefore, the correct option is D.

Step-by-step explanation:

To determine the projected tax expense for Year 8, we need to consider the tax rate. From the given information, we know that the tax rate structure produces a flat 34% tax rate on incomes from $335,000 to $10,000,000, and a flat rate of 35% on incomes above $18,333,333. Since Reed Corporation's income before taxes is $97.8 million in Year 7, which is below $18,333,333, we can assume a tax rate of 34%.

To calculate the projected tax expense for Year 8, we need to calculate 34% of the projected Year 8 income. Since sales are projected to increase by 4% in Year 8, we can calculate that the projected Year 8 income is $332 million + (4% of $332 million). We can then calculate the projected tax expense by multiplying the projected Year 8 income by 34%.

Therefore, the projected tax expense for Year 8 will be $29.8 million (option d).