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The following information is given:
\begin{tabular}{|l|l|}
\hline \multicolumn{1}{|c|}{ Item } & \multicolumn{1}{c|}{ Value } \\
\hline Income before interest and tax & [tex]$\$[/tex] 20,000$ \\
\hline Debt capital & [tex]$\$[/tex] 100,000$ \\
\hline Interest on debt capital & [tex]$5 \%$[/tex] \\
\hline Tax rate & [tex]$30 \%$[/tex] \\
\hline
\end{tabular}

What is the amount of [tex]$\operatorname{tax}$[/tex] paid for the year?

The amount of [tex]$\operatorname{tax}$[/tex] paid for the year is [tex]$\$[/tex][tex]$ $[/tex]\square$



Answer :

GinnyAnswer
To find the amount of tax paid for the year, follow these steps outline in detail:

1. Calculate the interest expense:
- Interest on debt capital is given as 5%.
- Debt capital is $100,000.
- Therefore, interest expense = 5% of [tex]$100,000 = $[/tex]5,000.

2. Calculate the taxable income:
- Income before interest and tax is $20,000.
- Taxable income = Income before interest and tax - Interest expense.
- Therefore, taxable income = [tex]$20,000 - $[/tex]5,000 = $15,000.

3. Calculate the tax paid:
- Tax rate is 30%.
- Tax = 30% of taxable income.
- Therefore, tax paid = 30% of [tex]$15,000 = $[/tex]4,500.

So, the amount of tax paid for the year is [tex]$\$[/tex]4500$.