Interim Taxes
Response to the following problem:
Farris Company is subject to income taxes at a rate of 20% on its first $50,000 of income and 35% on any income in excess of $50,000. In the process of preparing its interim reports, each quarter Farris Company uses an estimated effective income tax rate based on its estimated annual income. The following is a schedule that shows the company's actual year-to-date pretax income and the estimate of the annual pretax income made at the end of each quarter. The company neither anticipates nor incurs any extraordinary items, and its pretax accounting income is the same as its taxable income.
| |
Pretax Income Amounts at End of |
|
|
First
quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|
Actual income (year-to-date)
|
$20,000
|
$42,000
|
$ 60,000
|
$182,000
|
|
Estimated remaining income
|
60,000
|
44,000
|
21,000
|
|
|
Estimated annual pretax income
|
$80,000
|
$86,000
|
$81,000
|
$82,000
|
Required
Based on the preceding information, prepare a schedule for Farris Company to compute the income tax expense that would be listed on each quarterly income statement. (Carry your effective income tax rate computation to three decimal places.)