Asked by Akarshna Premanand on May 07, 2024
Verified
Which of the following does not properly describe the comparison of the effective income tax rate and the statutory income tax rate?
A) The rates could differ due to the tax jurisdiction that a firm operates in.
B) Permanent differences that cause book income to be higher than taxable income will cause the effective rate to be lower than the statutory rate.
C) The reconciliation between the rates can reflect information pertaining to a firm's tax policy decisions.
D) A firm with aggressive tax policies will most likely have an effective tax rate that is much higher than the statutory rate.
Effective Income Tax Rate
The average percentage of their total income that individuals or corporations pay in taxes, reflecting the actual rate of taxation rather than the nominal tax rate.
Statutory Income Tax Rate
The prescribed rate by law that a company or individual pays on income, differing by country and sometimes by income level or source.
Tax Jurisdiction
The legal authority granted to a government entity to impose taxes on individuals, businesses, or transactions within a defined geographical area.
- Evaluate the caliber of a firm's profits through analysis of its deferred tax note and effective tax rate.
Verified Answer
MZ
Maoting ZhongMay 10, 2024
Final Answer :
D
Explanation :
The statement that an aggressive tax policy will result in a higher effective tax rate than the statutory rate is incorrect. An aggressive tax policy involves minimizing a firm's tax liability through various legal means, which would likely result in a lower effective tax rate.
Learning Objectives
- Evaluate the caliber of a firm's profits through analysis of its deferred tax note and effective tax rate.