Provo, Inc. has an estimated annual tax rate of 35% in the first quarter of 2021. Pretax income for the first quarter was $300,000. At the end of the second quarter of 2021, Provo expects the annual tax rate to be 32% because of anticipated tax credits. Pretax income for the second quarter was $350,000. Assume no items in either quarter requiring the net-of-tax presentation.How much income tax expense is recognized in the first quarter of 2021?
A) $0.
B) $26,250.
C) $96,000.
D) $105,000.
E) $112,000.

Question

Quizplus · Accepted Answer

The income tax expense for the first quarter is calculated using the estimated annual tax rate at that time. Therefore, $300,000 (pretax income) x 35% (tax rate) = $105,000.