Provo, Inc. has an estimated annual tax rate of 35 percent in the first quarter of 2011. Pretax income for the first quarter was $300,000. At the end of the second quarter of 2011, Provo expects the annual tax rate to be 32 percent 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 2011?

Question

Quizplus · Accepted Answer

Income tax expense in the first quarter can be calculated as follows:

Pretax income in Q1 = $300,000
Effective tax rate in Q1 = 35%
Income tax expense in Q1 = $300,000 x 35% = $105,000

In the second quarter, the expected annual tax rate is 32%, which means the income tax expense for the second quarter would be:

Pretax income in Q2 = $350,000
Effective tax rate in Q2 = 32%
Income tax expense in Q2 = $350,000 x 32% = $112,000

Therefore, the total income tax expense for the first half of 2011 would be:

Total income tax expense for H1 = Income tax expense in Q1 + Income tax expense in Q2
Total income tax expense for H1 = $105,000 + $112,000 = $217,000

So, the correct answer is D, $105,000.