Question

Green Corporation reported pretax book income of $1,000,000. During the current year, the net reserve for warranties increased by $50,000. In addition, tax depreciation exceeded book depreciation by $100,000. Finally, Green subtracted a dividends received deduction of $25,000 in computing its current year taxable income. Green's cash tax rate is:

Answer 1

Answer:

Green's cash tax rate is 19.425%

Explanation:

The cash tax rate is the taxes payable divided by pretax book income. Green's taxable income is $925,000 ($1,000,000 + $50,000- $100,000 - $25,000). Taxes payable on taxable income is $194,250. The cash tax rate is 19.425% {$194,250/$1,000,000}.