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 for the first three quarters, we need to find the total income and total tax expense for the period.

Total Income = ($800,000 x 25%) + ($1,000,000 x 30%) + ($1,200,000 x 35%) = $250,000 + $300,000 + $420,000 = $970,000

Total Tax Expense (using the estimated tax rates) = ($970,000 x 20%) + ($970,000 x 25%) + ($970,000 x 30%) = $194,000 + $242,500 + $291,000 = $727,500

To find the income tax expense for the nine months ended September 30, we need to subtract the tax expense for the first two quarters from the total tax expense:

Income Tax Expense for 9 months = $727,500 - $476,500 = $251,000

To find the income tax expense for the third quarter, we need to subtract the tax expense for the first two quarters from the tax expense for the first three quarters:

Income Tax Expense for 3rd quarter = ($727,500 - $242,500) - ($476,500 - $217,500) = $485,000 - $259,000 = $226,000

Therefore, 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) for the nine months ended September 30 (Choice C)
- $103,200 (rounded) for the third quarter (Choice C)

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