Now that we have income tax expense calculated, we can go on and

looking at something called the effective tax rate,

which I had talked about on the first slide.

So the effective tax rate is defined as the income tax expense on the financial

statements divided by the pre-tax income on the financial statements.

So in this case it's 14,000 of income tax expense.

Divided by 41,000 of pre-tax income gives you 34.1%.

Now, notice that does not equal the statutory rate of

35% because of the permanent differences.

So, that municipal bond interest revenue.

Causes the Effective Tax Rate to not be the same as the Statutory rate.

It, it reduces it from 35% to 34.1%, and that's never going to reverse.

So this reflects all the permanent differences.

So going back to what we talked about earlier.

Permanent differences caused this Effective Tax Rate,

the Income Tax Expense divided by Pre-tax Income.

Caused that Effective Tax Rate to not equal that Statutory Rate of 35%.

>> Last week, we had the effective interest method.

Now, we have the effective tax rate.

Is there an ineffective interest method and an ineffective tax rate?