The Aluminum Company of America (Alcoa) includes the following information in its 1997 Financial Report:
|
(Dollars in millions) |
|
|
Income before income taxes |
$1,601.7 |
|
Provision (expense) for income tax |
528.7 |
|
Income taxes paid currently |
445.5 |
|
Deferred tax liabilities related to depreciating assets at |
|
|
December 31,1997 |
840.4 |
Required
Based solely on the information provided above
a. Determine Alcoa’s effective income tax rate during 1997.
b. Determine the percentage relation between Alcoa’s actual tax payments and income before taxes during 1997.
c. Provide a likely reason for the difference between the percentages determined in parts a and b above.
d. Assume that Alcoa’s statutory tax rate is 35 percent. What would you estimate as the difference between the tax basis and the book basis of Alcoa’s depreciable assets at the end of 1997?