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    Relation between income tax expense & effective tax rate

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    See attached Excel file.

    In the attached problem, the Income tax expense went down significantly when comparing 12/31/07 to 12/31/08, but the effective tax rate went up.

    What are some basic areas I can look at to understand the reasoning of this change.

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    Solution Preview

    The income tax expense for the year 2008 is $34,960 which is less than the the income tax expense of $87,680 in the year 2007. However, the effective interest rate for the year 2008 is 40.2% which is higher than the 33.5% of ...

    Solution Summary

    The answer contains the reason for reduction in income tax expense eventhough there is increase in effective tax rate