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Anthony, who lives in Zoolandia

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Anthony, who lives in Zoolandia

by BTGmoderatorDC » Fri Dec 08, 2017 2:59 am
Anthony, who lives in Zoolandia, pays 20% income tax on his earnings up to Z$30'000, 30% from Z$30'000 to Z$50'000 and 40% above Z$50'000. How much did he earn last year if he paid a 36% effective tax rate?

A) Z$210'000

B) Z$200'000

C) Z$190'000

D) Z$180'000

E) Z$160'000

Can some experts help me in solving this?

OA B
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by Jay@ManhattanReview » Fri Dec 08, 2017 6:53 am
lheiannie07 wrote:Anthony, who lives in Zoolandia, pays 20% income tax on his earnings up to Z$30'000, 30% from Z$30'000 to Z$50'000 and 40% above Z$50'000. How much did he earn last year if he paid a 36% effective tax rate?

A) Z$210'000

B) Z$200'000

C) Z$190'000

D) Z$180'000

E) Z$160'000

Can some experts help me in solving this?

OA B
Say Anthony earned Z$x last year. Since the effective rate of tax = 36% > 30%, we have Z$x > Z$50'000.

Thus, total tax = 36% of x = 36x/100 = 9x/25

Tax on the earnings up to Z$30'000 = 20% of Z$30'000 = Z$6000.
Tax on the earnings from Z$30'000 to Z$50'000 = 30% of Z$20'000 = Z$6000.
Tax on the earnings from Z$50'000 to Z$x = 40% of (x - 50'000) = 2x/5 - 20000

Total tax = 6000 + 6000 + 2x/5 - 20000 = -8000 + 2x/5

=> -8000 + 2x/5 = 9x/25

= 2x/5 - 9x/25 = 8000

x/25 = 8000 => x = Z$200'000.

The correct answer: B

Hope this helps!

-Jay
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