Daniel Corporation, which has a fiscal year ending December 31, had the following pretax accounting income and estimated effective annual income tax rates for the first three quarters of the year ended December 31, 20X6: Pretax Estimated Effective Annual Quarter Accounting Income Income Tax Rate at End of Quarter Q1 $ 100,000 36 % Q2 90,000 35 % Q3 110,000 32 % Daniel's income tax expense in its interim income statement for the third quarter is: Multiple Choice $29,500 $35,200 $66,500 $96,000

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valetta valetta · Answer 1 · 2019-08-19T09:18:58+02:00

Answer:

$ 29,500

Explanation:

Given:

Income at the end of quarter, Q1 = $ 100,000

and, the income tax rate = 36 %

Income at the end of quarter, Q2 = $ 90,000

and, the income tax rate = 35 %

Income at the end of quarter, Q3 = $ 110,000

and, the income tax rate = 32 %

Now,

the Total Accounting Income at the end of Q2 = ( $100,000 + $90,000) = $ 190,000

Income Tax expenses recognized upto Q2 = Total Income at the end of Q2 × Effective annual tax rate at the end of Q2

therefore,

Income Tax == $ 190,000 × 35% = $ 66,500

Now,

Total Accounting Income at the end of Q3 = ( $110,000 + $100,000+ $90,000 )

or

Total Accounting Income at the end of Q3 = $300,000

therefore,

Annual Income Tax for the quarter Q3 = Total Income at the end of Q3 × Effective annual tax rate at the end of Q3

on substituting the values, we get

Annual Income Tax for the quarter Q3 = $300,000 × 32% = $ 96,000

hence, the net Income tax expense for Q3 = $ 96,000 - $ 66,500

or

the net Income tax expense for Q3 = $ 29500