FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:The next three parts are based on the table below, which shows a payments schedule for a hypothetical negative income tax program.
| Family income | Tax liability |
|---------------|---------------|
| $2000 | -$3200 |
| $3000 | -$2800 |
| $4000 | -$2400 |
| $5000 | -$2000 |
**A) Assuming that it is constant, what is the benefit reduction rate?**
(a) 25 percent
(b) 40 percent
(c) 50 percent
(d) 60 percent
(e) 75 percent
**B) What is the breakeven level of income?**
(a) $7,000
(b) $8,000
(c) $9,000
(d) $10,000
(e) $12,000
**C) What is the "guarantee" or the after-tax income when pre-tax income is zero?**
(a) $3,000
(b) $3,500
(c) $4,000
(d) $4,500
(e) $5,000
Expert Solution
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Step 1
Here they are following negative income tax program.
For every increase of $1000 in income the negative tax liability decreases by $400.
Step by stepSolved in 4 steps with 3 images
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