Final answer:
To find Doubleday's effective total tax rate (Te), first calculate the net taxable income by subtracting total expenses from total revenue. Then, apply state and local tax rates as well as the federal tax rate to this net income. Divide the total taxes paid by the net taxable income to get the effective tax rate.
Step-by-step explanation:
To calculate the effective total tax rate (Te) for Doubleday, we must first determine the net taxable income. The net taxable income is the difference between total revenue, which includes sales and other revenue, and total expenses, including depreciation. Once the net taxable income is computed, we apply both the average federal and total state and local tax rates to the net income to determine the total tax obligation. After calculating the total taxes paid, we divide this by the net taxable income to find Te.
Doubleday's total revenue is $2.8 million in sales plus $900,000 in other revenue, totaling $3.7 million. Their total expenses are the sum of $1.4 million in expenses and $850,000 in depreciation, totaling $2.25 million. Thus, Doubleday's net taxable income is $3.7 million - $2.25 million = $1.45 million. Applying the tax rates, Doubleday's taxes are $304,400 for state and local (9.2% of $1.45 million) and $304,500 federal (21% of $1.45 million).
Therefore, Doubleday's total tax obligation is $304,400 + $304,500 = $608,900. To find the effective tax rate, we divide the total tax obligation by the net taxable income: Te = $608,900 / $1.45 million = 0.42 or 42%.