RoofCo reports total book income before taxes of $20,000,000 and a total tax exp
ID: 2337579 • Letter: R
Question
RoofCo reports total book income before taxes of $20,000,000 and a total tax expense of $8,000,000. FloorCo reports book income before taxes of $30,000,000 and a total tax expense of $12,000,000. The companies' breakdown between current and deferred tax expense (benefit) is as follows:
RoofCo FloorCo
Current tax expense $10,000,000 $13,000,000
Deferred tax benefit (2,000,000) (1,000,000)
Total tax expense $8,000,000 $12,000,000
RoofCo's deferred tax benefit is from a deferred tax asset created because of differences in depreciation methods for equipment. FloorCo's deferred tax benefit is created by the expected future use of an NOL.
Compute the companies' effective tax rates.
RoofCo: %
FloorCo: %
Explanation / Answer
Effective Tax rate = Total Tax expense/ Total book income
Roofco= 8,000,000/20,000,000= 40%
Floor Co = 12,000,000/20,000,000
=40%
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