Reading 38: Analysis of Income Taxes - LOS h ～ Q1-2

答案和详解如下：

1.A manufacturing firm is found to have an effective tax rate that is significantly less than the statutory rate. The cause is a much lower corporate income tax rate being applied to the firm’s operations in Poland. This item is most likely to be:

A)   continuous in nature, but the effect is typically neutralized by higher home country taxes so further evaluation is warranted.

B)   sporadic in nature, so the analyst will want to determine if the size of the tax benefit will change during the foreseeable future.

C)   sporadic in nature, so the analyst should identify the probable termination date for the differential.

D)   continuous in nature, but the analyst should verify that the rate being applied is the statutory rate in the country.

The correct answer was D)    

If the Polish income tax rate is the normal statutory rate, then the effect should be viewed as continuous. That is, this is the rate that should be used to project the firm’s after-tax cash flows into the foreseeable future.

2.While evaluating the financial statements of Omega, Inc., the analyst observes that the effective tax rate is 7% less than the statutory rate. The source of this difference is determined to be a tax holiday on a manufacturing plant located in South Africa. This item is most likely to be:

A)   sporadic in nature, but the effect is typically neutralized by higher home country taxes on the repatriated profits.

B)   continuous in nature, so the termination date is not relevant.

C)   continuous in nature, but the analyst will want to determine if the size of the tax benefit will change during the foreseeable future.

D)   sporadic in nature, and the analyst should try to identify the termination date and determine if taxes will be payable at that time.

The correct answer was D)

As the name suggests, a tax holiday is usually a temporary exemption from having to pay taxes in some tax jurisdiction. Because of the temporary nature, the key issue for the analyst is to determine when the holiday will terminate, and how the termination will affect taxes payable in the future.