Question

Catherine sat down with all of her income details from the past year to calculate the total income she had in that period. After she created a consolidated income statement, she deducted some tax-exempt income details from the statement. What term would Catherine use for this final income calculation?

A) Gross income
B) Net income
C) Taxable income
D) Adjusted income

Answer 1

Catherine would use the term 'Taxable income' for her final income calculation after deducting tax-exempt income from her adjusted gross income.

Step-by-step explanation:

The term Catherine would use for her final income calculation, after creating a consolidated income statement and deducting tax-exempt income details, is C Taxable income. This is because taxable income is calculated by taking the adjusted gross income and subtracting deductions and exemptions. She has effectively filtered down her gross earnings by removing non-taxable items to reach the income figure that will be subject to income tax. For clarity, three other terms are often associated with income calculations: Gross income which is the total income earned before any deductions, Net income, which is the income after subtracting all expenses, including taxes, and Adjusted income which could refer to adjustments to gross income for various allowable deductions, but the question specifically asks for the term to describe income after removing tax-exempt items, therefore taxable income is the correct term.