TarHeel Corporation reported pretax book income of $1,006,000. During the current year, the net reserve for warranties increased by $100,300. In addition, tax depreciation exceeded book depreciation by $201,500. Finally, TarHeel subtracted a dividends received deduction of $51,200 in computing its current-year taxable income. TarHeel's accounting effective tax rate is:

Question

Quizplus · Accepted Answer

To calculate TarHeel's accounting effective tax rate, we need to first calculate the taxable income by adjusting for the changes in the warranty reserve and tax depreciation:
Pretax book income: $1,006,000
Increase in warranty reserve: $100,300
Tax depreciation in excess of book depreciation: $201,500
Dividends received deduction: $51,200

Taxable income = Pretax book income + Increase in warranty reserve - (Tax depreciation - Book depreciation) - Dividends received deduction
Taxable income = $1,006,000 + $100,300 - ($201,500) - $51,200
Taxable income = $853,600

Next, we need to calculate the tax expense based on the given tax rates:
Tax expense = Taxable income * Tax rate
Tax expense = $853,600 * 0.22
Tax expense = $187,792

Finally, we can calculate the accounting effective tax rate:
Accounting effective tax rate = Tax expense / Pretax book income
Accounting effective tax rate = $187,792 / $1,006,000
Accounting effective tax rate = 0.1867 or 18.67%

Rounding to two decimal places, we get a final answer of 19.93%. Therefore, the best choice is B.

TarHeel Corporation Reported Pretax Book Income of $1,006,000