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During the first quarter of the calendar year, Worth Co. had income before taxes of $100,000, and its effective income tax rate was 15%. Worth's effective annual income tax rate for the previous year was 30%. Worth expects that its effective annual income tax rate for the current year will be 25%. The statutory tax rate for the current year is 35%. In its first quarter interim income statement, what amount of income tax expense should Worth report?
Choice 'b' is correct. When preparing interim financial statements, income tax expense is estimated each quarter using the effective tax rate expected to apply to the entire year.
Choice 'a' is incorrect. Worth should use the effective annual tax rate, not the effective tax rate for the quarter only.
Choice 'c' is incorrect. Worth should use the effective annual tax rate expected to apply to the current year, not the prior year's effective tax rate.
Choice 'd' is incorrect. Worth should use the effective annual tax rate, not the statutory tax rate.
Segment Reporting
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