Two companies, ABC and XYZ, have the following values on their annual tax returns:
 FIGURE 1.png)
 figure 2.png)
(a) Company ABC:
TI = Gross income - Expenses - Depreciation
= (1,500,000 + 31,000) – 754,000 – 148,000
= $629,000
Taxes = 113,900 + 0.34(629,000 – 335,000)
= $213,860
Company XYZ:
TI = (820,000 + 25,000) – 591,000 – 18,000
= $236,000
Taxes = 22,250 + 0.39(236,000 – 100,000)
= $75,290
(b) ABC: (213,860/1,500,000)*100% = 14.26%
XYZ: (75,290/820,000)*100% = 9.18%
(c) ABC:
Taxes = (TI)(Te) = 629,000(0.34) = $213,860
% error = 0%
XYZ:
Taxes = (TI)(Te) = 236,000(0.39) = $92.040
% error = [(92,040 – 75,290)/75,290]*100%
= 22.2% over estimate
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