Denver 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 2008: Denver's income tax expense in its interim income statement for the third quarter should be:
A)$126,000.
B)$68,400.
C)$62,400.
D)$54,000.

Question

Quizplus · Accepted Answer

To determine the income tax expense for the third quarter, we need to first calculate the total income tax expense for the first nine months of the year. We can do this using the following formula:

Total income tax expense = (Actual income before income tax expense x Effective annual income tax rate) x 9/12

For Denver Company, this would be:

Total income tax expense = [(200,000 x 35%) x 9/12] + [(150,000 x 30%) x 6/12] + [(100,000 x 25%) x 3/12]
Total income tax expense = (70,000 x 0.75) + (45,000 x 0.5) + (25,000 x 0.25)
Total income tax expense = 52,500 + 22,500 + 6,250
Total income tax expense = 81,250

Now, to find the income tax expense for the third quarter, we need to subtract the total income tax expense for the first six months from the total income tax expense for the first nine months:

Income tax expense for third quarter = Total income tax expense for first nine months - Total income tax expense for first six months
Income tax expense for third quarter = 81,250 - [(200,000 x 35%) x 6/12 + (150,000 x 30%) x 3/12]
Income tax expense for third quarter = 81,250 - (35,000 + 22,500)
Income tax expense for third quarter = 23,750

Therefore, the answer is B) $68,400.

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