Question

Green Corporation reported pretax book income of $1,040,000. During the current year, the net reserve for warranties increased by $52,000. In addition, tax depreciation exceeded book depreciation by $110,000. Finally, Green subtracted a dividends received deduction of $26,000 in computing its current-year taxable income. Green's cash tax rate is

Answer 1

19.30%

Step-by-step explanation:

Calculation to determine what Green's cash tax rate is

First step is to calculate the Taxes payable using this formula

Taxes payable = (Pretax book income + provision for warranties - depreciation in excess of books - dividends received deduction) x 21%

Let plug in the formula

Taxes payable= ($1,040,000 + $52,000 - $110,000 - $26,000) x 21%

Taxes payable=$956,000×21%

Taxes payable= $200,760

Now let determine the Cash tax rate using this formula

Cash tax rate = Taxes payable / Pretax book income

Let Plug in the formula

Cash tax rate = $200,760 / $1,040,000

Cash tax rate = .1930

Cash tax rate=19.30%

Therefore Green's cash tax rate is 19.30%