Question

TarHeel Corporation reported pretax book income of $1,032,000. During the current year, the net reserve for warranties increased by $101,600. In addition, tax depreciation exceeded book depreciation by $208,000. Finally, TarHeel subtracted a dividends received deduction of $56,400 in computing its current year taxable income. TarHeel's accounting effective tax rate is:

Answer 1

17.68%

Step-by-step explanation:

Given:

Pretax book income = $1,032,000

Net reserve for warranties = $101,600

Additional Tax depreciation = $208,000

Deduction of dividends received = $56,400

Now,

Taxable income

= Pretax book income + Net reserve for warranties - Additional Tax depreciation - Deduction of dividends received

= $1,032,000 + $101,600 - $208,000 - $56,400

= $1,133,600 - $264,400

= $869,200

Now,

The amount of Tax at the rate 21%

= Taxable income × Tax rate

= $869,200 × 21%

= $182,532

Therefore,

The Effective accounting tax rate

=
`\frac{\textup{Total tax}}{\textup{Pretax income}}`

=
`\frac{\$\textup{182,532}}{\$\textup{1,032,000}}`

= 0.1768

or

= 0.1768 × 100%

= 17.68%