TarHeel Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $25,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, TarHeel subtracted a dividendsreceived deduction of $25,000 in computing its current year taxable income. Assume a tax rate of 34%. TarHeel's accounting effective tax rate is:

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To calculate the accounting effective tax rate, we need to start with pretax book income of $1,000,000 and make adjustments for items that affect taxable income but not book income. The net reserve for warranties increased by $25,000, so this amount is deductible for tax purposes, reducing taxable income to $975,000. Tax depreciation exceeded book depreciation by $100,000, so we need to add this amount back to taxable income, increasing it to $1,075,000. Finally, we subtracted a dividends received deduction of $25,000, so this reduces taxable income to $1,050,000. Applying the tax rate of 34% to this amount yields a tax liability of $357,000. Therefore, the accounting effective tax rate is $357,000 ÷ $1,075,000 = 33.15%.

TarHeel Corporation Reported Pretax Book Income of $1,000,000