Hello, I have another tax question!
CFA L1 2015, FRA Page 507, EOC #20-22
This set of problem gives me multiple line items, in the following order:
Expected federal income tax expense (benefit) from continuing operations at 34%
Expenses not deductible for income tax purposes
State income taxes, net of federal benefit
Change in valuation allowance for deferred tax assets
Income tax expense
My question is… what’s the difference between the first and last line items? Question #20 asks me to calculate the net income for the company, which I assumed requires the use of the last item “Income Tax Expense”, according to the following formula:
Reported Effective Tax Rate = [Income Tax Expense]/[Pretax income]
… but the solution used the first line item “Expected federal income tax expense (benefit) from continuing operations at 34%”. Could someone please explain to me why this is the case?