Oriole Company Reported Pretax Net Income from Continuing Operations of $1,000,000

question 104

Essay

Oriole Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $1,200,000. The unfavorable book-tax difference of $200,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $300,000 due to an increase in the reserve for bad debts, and a $100,000 unfavorable permanent difference from the disallowance of compensation expense related to the exercise of incentive stock options.
a. Compute Oriole's current income tax expense.
b. Compute Oriole's deferred income tax expense or benefit.
c. Compute Oriole's effective tax rate.
d. Provide a reconciliation of Oriole's effective tax rate with its hypothetical tax rate of 21 percent.

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Definitions:

Regressive Effect

A situation where a policy or economic condition disproportionately impacts lower-income individuals more negatively than those with higher incomes.

Proportional

Proportional refers to a relationship or distribution in which changes in one variable correspond to equal changes in another variable.

Social Security Tax

A tax levied on both employers and employees to fund the Social Security program, which provides retirement, disability, and survivorship benefits.

Payroll Tax

Dues collected from employees or employers, calculated by taking a fraction of the pay employers give to their workers.