Hafnaoui Company reported pretax net income from continuing operations of $889,500 and taxable income of $587,500. The book–tax difference of $302,000 was due to a $229,000 favorable temporary difference relating to depreciation, an unfavorable temporary difference of $130,000 due to an increase in the reserve for bad debts, and a $203,000 favorable permanent difference from the receipt of life insurance proceeds.
a. Provide a reconciliation of Hafnaoui Company's effective tax rate with its hypothetical tax rate of 21 percent.
