B-Line Company Reported Pretax Net Income from Continuing Operations of $1,000,000

question 19

Essay

B-Line Company reported pretax net income from continuing operations of $1,000,000 and taxable income of $800,000. The favorable book-tax difference of $200,000 was due to a $100,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $50,000 due to accrued vacation pay, and a $150,000 favorable permanent difference from the dividends received deduction.
a. Compute B-Line's current income tax expense.
b. Compute B-Line's deferred income tax expense or benefit.
c. Compute B-Line's effective tax rate.
d. Provide a reconciliation of B-Line's effective tax rate with its hypothetical tax rate of 21 percent.

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Definitions:

Tax Effects

The impact of tax laws on the financial performance of a company or the net income of an individual, including deductions, exemptions, and liabilities.

Stock Splits

An initiative taken by a company to multiply its current shares into more shares to augment the ease of trading those shares.

Owner's Equity

Owner's equity represents the owner's claim on the assets of a business after all liabilities have been deducted, indicating the net value owned by the proprietor in the company.

Regular Dividends

Payments made by a corporation to its shareholders out of its profits on a recurring basis.