Southbound Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000....
Southbound Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000. The book–tax difference of $300,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $80,000 due to an increase in the reserve for bad debts, and a $180,000 favorable permanent difference from the receipt of life insurance proceeds.
c. Compute Southbound Company’s effective tax rate.
Homework Answers
Solution:-
Note:- Assuming tax rate is 34%
Effective tax rate:- 26.35%
Explanation:-
| Pre-tax net income | 800,000 |
| Favorable temporary difference | (200,000) |
| Unfavorable temporary difference | 80,000 |
| Favorable permanent difference | (180,000) |
| Taxable income | 500,000 |
| Current income tax payable @34% | 170,000 |
| Favorable temporary difference | (200,000) |
| Unfavorable temporary differences | 80,000 |
| Net favorable temporary difference | (120,000) |
| Deferred tax expense (liability) @34% | (40,800) |
Total income tax provision = 170,000 + 40,800 = 210,800
Effective tax rate = 210,800 / 800,000 = 26.35%
Pelase Rate.
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