Toledo Imports,a calendar-year corporation,had the following income before tax expense and estimated effective annual income tax rates for the first three quarters in 20X8:

Toledo's income tax expense in its interim income statement for the nine months ended September 30 and for the third quarter,respectively,are:
A)$250,800 and $103,200.
B)$252,000 and $108,000.
C)$252,000 and $103,200.
D)$250,800 and $108,000.

Question

Toledo Imports,a calendar-year corporation,had the following income before tax expense and estimated effective annual income tax rates for the first three quarters in 20X8:

Toledo's income tax expense in its interim income statement for the nine months ended September 30 and for the third quarter,respectively,are:
A)$250,800 and $103,200. 
B)$252,000 and $108,000. 
C)$252,000 and $103,200. 
D)$250,800 and $108,000.

Quizplus · Accepted Answer

To calculate the income tax expense, we need to use the formula:

Income tax expense = Income before tax x Effective annual income tax rate

For the 9 months ended September 30, the income before tax is the sum of the income before tax for the first three quarters:

$96,000 + $120,000 + $140,000 = $356,000

The effective annual income tax rate for the 9 months can be estimated as:

[$48,000/$200,000 x 25%] + [$50,400/$200,000 x 25%] + [$58,800/$200,000 x 25%] = 0.3075

Therefore, the income tax expense for the 9 months is:

$356,000 x 0.3075 = $109,410

For the third quarter, the income before tax is $60,000 and the effective annual income tax rate for the quarter can be estimated as:

$20,400/$80,000 x 25% = 0.255

Therefore, the income tax expense for the third quarter is:

$60,000 x 0.255 = $15,300

Hence, the income tax expense in Toledo's interim income statement for the nine months ended September 30 and for the third quarter, respectively, are:

$252,000 (rounded) and $103,200 (rounded).

Therefore, the best choice is C.

Toledo Imports,a Calendar-Year Corporation,had the Following Income Before Tax Expense