CFA Practice Question

CFA Practice Question

Which of the following will cause the reported effective tax rate to differ from the federal statutory tax rate?

I. foreign tax rates that are lower than federal statutory tax rate
II. tax-exempt income
III. different depreciation methods for tax and financial reporting purposes
IV. foreign tax rates that are higher than federal statutory tax rate
A. I, II and III
B. III only
C. I, II, and IV
Explanation: The different depreciation methods for tax and financial reporting purposes will not affect the tax rates.

User Contributed Comments 7

User Comment
shasha permanent difference causes effective tax rate different from the fed rate.
Munyoli Tax rate rec. - temporary differences hits the rate reconciliation thru deferred tax.
chamad Anyone to explain I & IV? Thanks
Dinosaur If foreign taxes are different from fed taxes the company will be taxed at a different effective rate.
jpducros Effective Tax rate is calculated using (income tax+differed tax); therefore, here we are looking to permanent differences, like differences in tax rates between countries. III is temporary difference.
indrayudha Thx for explanation jpducros, I understand it intuitively, but you gave it more concrete basis argument.
dan1987 III will not change the tax rate but will effect the amount of tax paid in that accounting period, the question is asking about the tax rate I.e does a company pay 40% or 30% and what will effect that
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