77. Hafnaoui Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000. The book-tax difference of $300,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $80,000 due to an increase in the reserve for bad debts, and a $180,000 favorable permanent difference from the receipt of life insurance proceeds. At the end of the year, the reserve for bad debts had a balance of $100,000; the beginning balance in the account was $20,000. Hafnaoui's beginning book (tax) basis in its fixed assets was $1,000,000 ($800,000) and its ending book (tax) basis is $1,500,000 ($1,100,000). a) Compute Hafnaoui Company's current income tax expense. b) Compute Hafnaoui Company's deferred income tax expense or (benefit). c) Compute Hafnaoui Company's effective tax rate. d) Provide a reconciliation of Hafnaoui Company's effective tax rate with its hypothetical tax rate of 21 percent.
77. Hafnaoui Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000. The book-tax difference of $300,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $80,000 due to an increase in the reserve for bad debts, and a $180,000 favorable permanent difference from the receipt of life insurance proceeds. At the end of the year, the reserve for bad debts had a balance of $100,000; the beginning balance in the account was $20,000. Hafnaoui's beginning book (tax) basis in its fixed assets was $1,000,000 ($800,000) and its ending book (tax) basis is $1,500,000 ($1,100,000). a) Compute Hafnaoui Company's current income tax expense. b) Compute Hafnaoui Company's deferred income tax expense or (benefit). c) Compute Hafnaoui Company's effective tax rate. d) Provide a reconciliation of Hafnaoui Company's effective tax rate with its hypothetical tax rate of 21 percent.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
Transcribed Image Text:77. Hafnaoui Company reported pretax net income from continuing operations
of $800,000 and taxable income of $500,000. The book-tax difference of
$300,000 was due to a $200,000 favorable temporary difference relating to
depreciation, an unfavorable temporary difference of $80,000 due to an
increase in the reserve for bad debts, and a $180,000 favorable permanent
difference from the receipt of life insurance proceeds. At the end of the
year, the reserve for bad debts had a balance of $100,000; the beginning
balance in the account was $20,000. Hafnaoui's beginning book (tax) basis
in its fixed assets was $1,000,000 ($800,000) and its ending book (tax)
basis is $1,500,000 ($1,100,000).
a) Compute Hafnaoui Company's current income tax expense.
b) Compute Hafnaoui Company's deferred income tax expense or (benefit).
c) Compute Hafnaoui Company's effective tax rate.
d) Provide a reconciliation of Hafnaoui Company's effective tax rate with its
hypothetical tax rate of 21 percent.
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