Problem: Which of the following statements best describes the impact permanent differences have on a company's effective income tax rate.
A. Nondeductible expenses decrease a company's effective income tax rate and nontaxable income increases a company's effective income tax rate.
B. Nondeductible expenses increase a company's income tax rate and nontaxable income decreases a company's effective income tax rate.
C. There is no impact. That is the purpose of deferred income taxes; to make these items deductible.