A Stationery Company Plans to Launch a New Type of Indelible

question 106

Multiple Choice

A stationery company plans to launch a new type of indelible ink pen.Advertising for the new product will be heavy and will cost the company $10 million,although the company expects general revenues of $280 million next year from sources other than sales of the new pen.If the company has a corporate tax-rate of 40% on its pretax income,what effect will the advertising for the new pen have on its taxes?

• A)Increase taxes by $10 million
• B)Increase taxes by $4 million
• C)It will have no effect on taxes.
• D)Reduce taxes by $4 million

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Definitions:

Freight Costs

Expenses associated with transporting goods from one place to another, which can include costs for shipping, trucking, or rail transport services.

Operating Expense

Expenses incurred during the normal operations of a business, such as salaries, rent, and utilities, excluding cost of goods sold.

Outgoing Merchandise

Outgoing merchandise refers to inventory that has been sold and is in the process of being shipped to the customer.

Multiple-Step

The multiple-step income statement is a detailed financial report that separates operating revenue and expenses from non-operating ones to highlight core business activities.