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

question 67

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%.

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Definitions:

Monopoly Power

The ability of a single supplier in a market to dictate prices and control output, usually due to the lack of competition.

Sherman Act

A landmark federal statute in the United States antitrust law passed by Congress in 1890 to prohibit monopolies and foster competition.

Price-Fixing

An illegal agreement among competitors to set prices at a certain level, rather than letting them be determined naturally by market forces.

Clayton Act

A U.S. antitrust law enacted in 1914, aimed at promoting competition and preventing monopolies by prohibiting certain practices that could lead to anticompetitive behavior.