Chicago Company,a calendar-year corporation,had the following actual income before income tax expense and estimated effective annual income tax rates for the first three quarters in 20X2:

Chicago's income tax expense in its interim income statement for the third quarter should be
A) $36,000
B) $41,000
C) $42,400
D) $84,000

Question

Chicago Company,a calendar-year corporation,had the following actual income before income tax expense and estimated effective annual income tax rates for the first three quarters in 20X2:

Chicago's income tax expense in its interim income statement for the third quarter should be
A) $36,000 
B) $41,000 
C) $42,400 
D) $84,000

Quizplus · Accepted Answer

To calculate the income tax expense for the third quarter, we need to first determine the income before income tax expense for the third quarter. We can do this by subtracting the actual income before income tax expense for the first two quarters from the actual income before income tax expense for the first three quarters:

$720,000 - $600,000 = $120,000

Next, we need to determine the estimated effective annual income tax rate. We are not given this rate directly in the problem, but we can calculate it by averaging the rates given for the first three quarters:

(35% + 40% + 30%)/3 = 35%

Finally, we can calculate the income tax expense for the third quarter by multiplying the income before income tax expense for the third quarter by the estimated effective annual income tax rate:

$120,000 x 35% = $42,000

This is the amount of income tax expense that should be recorded in Chicago's interim income statement for the third quarter. However, since the problem only gives us answer choices rounded to the nearest thousand, the correct answer is C, $42,400 (which is closest to $42,000).

Chicago Company,a Calendar-Year Corporation,had the Following Actual Income Before Income