Final answer:
Option a, b and c are the correct answer. A company's effective tax rate reconciliation might include interest from nontaxable bonds, non-deductible fines, and life insurance premiums, as these items affect the discrepancy between the statutory and actual tax rates paid.
Step-by-step explanation:
In a company's effective tax rate reconciliation, certain items reconcile differences between the statutory tax rate and the effective tax rate. Items that might appear in this reconciliation include:
- Interest received from nontaxable state and municipal government bonds, since this interest is typically exempt from federal income taxes and would decrease the company's effective tax rate.
- Fines and penalties due to violations of the law, as these are generally not deductible for tax purposes, meaning they would increase the effective tax rate of the company.
- Non-deductible life insurance premiums paid, which like fines, cannot be deducted, resulting in a higher effective tax rate.
However, temporary differences between warranty costs deducted in the tax return and warranty expense recognized in the income statement typically lead to deferred taxes, not changes in the effective tax rate, and so might not be included in the effective tax rate reconciliation.