Cougar has pretax accounting income (PAI) of $66,000 in 2016 after including the effects of the appropriate items from the following information:

MACRS (tax) depreciation $20,000

Officers life insurance premium expense $15,000

Interest revenue on municipal bonds $25,000

Depreciation taken for financial reporting purposes $38,000

Actual product warranty costs deducted for tax purposes $20,000

Excess of accrual-basis financial accounting sales over cash-basis

sales recognized for tax purposes $11,000

Estimated product warranty expense for financial reporting

Purposes $27,000

At the beginning of 2016, Cougar had a deferred tax liability (DTL) balance of $17,250 which reflected a $41,800 taxable temporary difference related to depreciation and another $15,700 taxable temporary difference related to accrual-basis sales differences. Cougar had a deferred tax asset (DTA) balance of $14,850 related to a $49,500 deductible temporary difference resulting from a warranty liability (obligation under warranty) balance at the beginning of the year. The tax rate for 2016 is 30%, but during 2016, Congress changed the enacted tax rate to 34% for all future tax years beginning in 2017.

Required:

1) Compute Cougars taxable income for 2016. What are income taxes payable for 2016?

2) Prepare Cougars journal entry to record income tax expense for 2016 (assume no

valuation allowance existed as of the beginning of the year and is unnecessary at the end

of the year).

3) What is Cougars effective tax rate?