Collins,Inc. ,reports an effective tax rate in its income tax footnote of 14%.The only reconciling item with regard to the hypothetical tax at 35% is a valuation allowance reversal of negative 21%.Which of the following statements is true concerning comparing Collins,Inc.'s effective tax rate with its competitors,all of whom have an effective tax rate between 32 and 36%?

Question

Quizplus · Accepted Answer

Collins Inc.'s effective tax rate of 14% may seem low compared to its competitors, but the valuation allowance reversal of negative 21% suggests that the company has uncertain future tax benefits. This means that the company's structural effective tax rate, which takes into account all permanent differences between GAAP and tax accounting, may actually be close to its peers. Therefore, choice C is the best answer. Choices A and B are not supported by the information given and choice D is not a logical conclusion based on the given information.