FSA, easy one

[FisherSU]

A company owns $100,000 muni bond, with 5% coupon and has an effective tax rate of 50% and a statutory rate of 40%. The deferred tax created each year by this bond is:

A. 2,500
B. 2,000
C. 500
D. 0

 

[tvPM]

zippo cuz its a muni?

 

[daj224]

FisherSU Wrote:
-------------------------------------------------------
> A company owns $100,000 muni bond, with 5% coupon
> and has an effective tax rate of 50% and a
> statutory rate of 40%. The deferred tax created
> each year by this bond is:
>
> A. 2,500
> B. 2,000
> C. 500
> D. 0


D

 

[Hank0414x]

D) 0



Edited 1 time(s). Last edit at Thursday, June 5, 2008 at 10:34PM by Hank0414x.

 

[Hank0414x]

*** duplicate!



Edited 1 time(s). Last edit at Thursday, June 5, 2008 at 10:35PM by Hank0414x.

 

[KJH]

Wow this makes me feel good. I don't have a clue for the easy one.

 

[cfasuicide]

D permanent difference.

 

[krisC]

No int recognition in Tax so ideally
2000 Deferred liability !!!!

But this would NEVER be reversed so treat this as equity and deferred liability =0.

Did u say it was easy???

 

[ktarayao]

if this muni isn't tax-free, then C) 500
otherwise D) 0

 

[mcf]

The answer would be 0 for the reasons people listed above.

However, it should be remembered that, in reality, not all muni's are tax deductible. It's complicated further by the fact that you'll probably not get both a federal and state tax deduction for them.

 

[FisherSU]

i was right, this was an easy one. Answer is D, => perm. diferrence

 

[beingthatguy]

i thought the interest was taxable at the federal level?

 

[FisherSU]

it probably is,w but e don't have that info here