1. The following information relates to Robert Company for the year ended December 31, 2020, its first year of operations. The firm reports pretax financial statement income of $325,000. The enacted income tax rate is 25% for 2020 and future years.

The following are differences between pretax financial statement income and taxable income for 2020:

	Financial Statements	Tax Return
Revenues	$ 897,000	$ 935,000
Interest income*	$ 9,000	$ 6,500
Warranty expenses	$ 32,000	$ 27,000
Depreciation expense	$ 95,000	$ 160,000

*Difference in interest income relates to non-taxable municipal bond interest.

Instructions

1. Determine the effective tax rate for Robert in 2020.

2. Why is the effective rate different from the statutory, enacted rate of 25%?

3. How much net income will Robert report for 2020?