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 calculate the year-to-date income and the estimated effective annual tax rate.

Year-to-date income = $290,000 + $380,000 + $450,000 = $1,120,000

Effective annual tax rate = (estimated total tax for the year / estimated taxable income for the year) x 100

From the table, the estimated total tax for the year is $220,000 and the estimated taxable income for the year is $1,900,000.

Effective annual tax rate = (220,000 / 1,900,000) x 100 = 11.58%

Now we can calculate the income tax expense for the third quarter:

Income before tax for Q3 = $450,000
Income tax expense for Q3 = $450,000 x 11.58% = $52,110
Adjustment for over/under provision in the first two quarters = ($36,000 + $41,000) - ($290,000 + $380,000) x 11.58% = $(5,690)
Total income tax expense for Q3 = $52,110 - $5,690 = $46,420

Therefore, the closest option is C) $42,400.

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