Refer to Note 5 of the financial statements of International Corporation shown in Appendix A on pages \(584-586\).

a What is the combined marginal federal, state, and local income tax rate that International Corporation appeared to pay in 19X1? That is, if International Corporation were to earn another \(\$ 1\), how much of that \(\$ 1\) would be paid in income taxes to federal, state, and local governments?

In the remainder of this problem, assume that the marginal income tax rate is 40 percent of pretax income.

b By how much did depreciation claimed on the tax return exceed depreciation expense reported in the financial statements for the year 19X1?

c International Corporation uses the percentage-of-completion method of income recognition on certain long-term contracts but the installment method on tax returns. In one of the years \(19 \mathrm{X} 0\) and 19X1, income from the percentage-of-completion method exceeded income under the installment method. In the other year the direction was reversed. Which is which? How can you tell?

d Warranty costs are not deductible on the tax return until actual repairs or replacements are made. Estimated warranty expenses are shown in the financial statements whenever they can be computed with a reasonable degree of precision. Did warranty expense on the financial statements exceed deductions for warranty costs on the tax return or vice versa in 19X1? How can you tell? By how much?