Chapter 13, Problem 13.15P

Interim Income Statement
Chris Inc. has accumulated the following information for its second−quarter income statement for20X2:

Additional In formation
1. First-quarter income before taxes was $100,000, and the estimated effective annual tax rate was 40 percent. At the end of the second quarter, expected annual income is $600,000, and a dividend exclusion of $30,000 and a business tax credit of $15,000 are anticipated. The combined state and federal tax rate is 50 percent.
2. The $420,000 cost of goods sold is determined by using the LIFO method and includes 7,500 units from the base layer at a cost of $12 per unit. However, you have determined that theseunits are expected to be replaced at a cost of $26 per unit.
3. The operating expenses of $230,000 include a $60,000 factory rearrangement cost incurred inApril. You have determined that the second quarter will receive about 25 percent of the benefits from this project with the remainder benefiting the third and fourth quarters.

Required

1. Calculate the effective annual tax rate expected at the end of the second quarter for Chris Inc.
2. Prepare the income statement for the second quarter of 20X2. Your solution should include a computation of income tax (or benefit) with the following headings: