Mattel Inc.’s 2013 financial statements show operating profit before tax of $1,168,103 thousand, net income of $903,944 thousand, provision for income taxes of $195,184 thousand and net nonoperating expense before tax of $68,975 thousand. Assume Mattel’s statutory tax rate for 2013 is 37%. Mattel’s 2013 tax shield is:

$25,521 thousand

Explanation:

Mattel Inc.’s

Tax shield = Net nonoperating expense before tax × statutory tax rate

Therefore :

= $68,975 × 37% = $25,521 thousand

If we assumed that Mattel’s statutory tax rate for 2013 is 37% then Mattel’s 2013 tax shield will be $25,521 thousand.

Options:

A)  $ 43,454 thousand

B)  $ 25,521 thousand

C)  $ 264,159 thousand

D)  $ 238,638 thousand

E) None of the above

B)  $ 25,521 thousand

Explanation:

Tax shield refers to reductions in taxable income that a corporation can claim based on allowable deductions. Tax shields lower the amount of total taxes owed. This applies to both businesses and individuals.

Tax shield is calculated by multiplying the taxable expense by the company's current tax rate. In this case, the company's expense that reduces taxes is $68,975 thousand (non-operating expenses).

Tax shield = $68,975 x 37% = $25,520.75 ≈ $25,521 thousand*

*Mattel's financial statements are expressed in thousands of dollars, $25,520.75 would be equal to $25,520,750.

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