Pretax accounting income is $100,000 and the tax rate is 40%.Included in income is a $20,000 fine levied for pollution violations and other infractions during the year.In the reconciliation of the statutory and effective rate (beginning with the statutory rate),which one of the following amounts would appear?

Question

Quizplus · Accepted Answer

The $20,000 fine is not deductible for tax purposes, effectively increasing the tax expense and the effective tax rate. The calculation for the rate impact of the non-deductible fine is $20,000 / $100,000 = 0.20 or 20%. Since the question asks for the amount that would appear in the reconciliation starting with the statutory rate (40%), the appearance of .08 (or 8%) is incorrect. The correct approach to find the impact on the effective rate involves comparing the actual tax effect of the non-deductible item to the statutory rate, but the given choices do not align with this calculation directly. The choice provided here as correct (B) is based on the misunderstanding of the question's requirement for a direct calculation impact, which seems to have been misinterpreted in the explanation. The correct interpretation should involve calculating the difference in tax due to the non-deductible expense, but none of the provided options accurately reflects the standard method for such a calculation. The explanation mistakenly suggests an answer based on an incorrect interpretation of how the fine affects the effective tax rate directly.

Pretax Accounting Income Is $100,000 and the Tax Rate Is