Hafnaoui Company reported pretax net income from continuing operations of $800,000 and taxable income of $500,000. The book–tax difference of $300,000 was due to a $200,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $80,000 due to an increase in the reserve for bad debts, and a $180,000 favorable permanent difference from the receipt of life insurance proceeds.
a) Compute Hafnaoui Company’s current income tax expense.
b) Compute Hafnaoui Company’s deferred income tax expense or benefit.
c) Compute Hafnaoui Company’s effective tax rate.
d) Provide a reconciliation of Hafnaoui Company’s effective tax rate with its hypothetical tax rate of 21 percent.