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 second quarter of 2011?

Question

Quizplus · Accepted Answer

The correct answer is A because the income tax expense for the second quarter is $103,000, calculated as follows: Pretax income x (1 - Annual tax rate at the end of the second quarter) x Annual tax rate at the end of the second quarter = $350,000 x (1 - 0.32) x 0.32 = $103,000.