A corporation that does business in the United States must pay federal income taxes based on its amount of net income. The amount of income tax varies from year to year, based on net income, corporate tax brackets, tax legislation, and changing tax regulations. The effective tax rate for a corporation can be calculated by dividing the "provision for income taxes" amount by the "income before income taxes" amount. An awareness of the effective tax rate can help a corporation prepare budgets for future years. 

Instructions: 

Refer to Costco's Consolidated Statements of Income on page B-7 of Appendix B in this textbook, and complete the following items. 

1. List the "provision for income taxes" amounts for the 53 weeks ended September 3, 2006; the 52 weeks ended August 28, 2005; and the 52 weeks ended August 29, 2004. 

2. Calculate the effective tax rates for each of the three fiscal years. 

3. Determine how much Costco would have paid in federal income taxes in 2004 had the company used the 2005 effective tax rate. What was the amount of tax savings for 2005?

Data from page B-7 of Appendix B

Transcribed Image Text:

REVENUE Net sales Membership fees. Total revenue COSTCO WHOLESALE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share data) 53 weeks ended September 3, 2006 52 weeks ended August 28, 2005 52 weeks ended August 29, 2004 OPERATING EXPENSES Merchandise costs Selling, general and administrative Preopening expenses.... Provision for impaired assets and closing costs, net Operating income OTHER INCOME (EXPENSE) Interest expense..... Interest income and other INCOME BEFORE INCOME TAXES Provision for income taxes NET INCOME NET INCOME PER COMMON SHARE: Basic Diluted Shares used in calculation (000's) $58,963,180 $51,879,070 $47,148,627 1,188,047 1,073,156 961,280 60,151,227 52,952,226 48,109,907 52,745,497 46,346,961 42,092,016 5,732,141 5,061,339 4,600,792 42,504 53,230 30,451 5,453 16,393 1,000 1,625,632 1,474,303 1,385,648 (12,570) (34,437) (36,651) 138,355 109,096 51,627 1,751,417 1,548,962 648,202 485,870 1,400,624 518,231 $ 1,103,215 $ 1,063,092 $ 882,393 $ EA 2.35 2.24 2.30 $ 2.18 $ EA 1.92 1.85