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 3000 4000 5000 - $3200 - 2800 - 2400 - 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

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
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
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
Step 1

Here they are following negative income tax program.

For every increase of $1000 in income the negative tax liability decreases by $400.

steps

Step by step

Solved in 4 steps with 3 images

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education