AICPA CPA-Financial Exam - Topic 2 Question 121 Discussion

Actual exam question for AICPA's CPA-Financial exam

Question #: 121
Topic #: 2

During the first quarter of 1993, Tech Co. had income before taxes of $200,000, and its effective income tax rate was 15%. Tech's 1992 effective annual income tax rate was 30%, but Tech expects its 1993 effective annual income tax rate to be 25%. In its first quarter interim income statement, what amount of income tax expense should Tech report?

A$0

D$60,000

B$30,000

C$50,000

Show Suggested Answer

Suggested Answer: C

Choice 'c' is correct. Interim period tax expense is the estimated annual effective tax rate (25% in this case) applied to the year-to-date income before taxes minus the tax expense recognized in previous interim periods. Since this question involves the first quarter, there are no previous interim periods. 25% $200,000 = $50,000. FIN 18, para. 16

Choice 'a' is incorrect. Income tax expense is reported in interim income statements.

Choice 'b' is incorrect. The 1993 annual estimated tax rate, not the first quarter effective tax rate, is used to calculate income tax expense for interim statements.

Choice 'd' is incorrect. The 1993 annual estimated tax rate, not the 1992 annual effective tax rate, is used to calculate income tax expense for interim statements.

by Janet at Jan 26, 2026, 11:05 PM

Limited Time Offer

25%

1 month ago

I think I can handle this. Just need to calculate the income tax expense based on the given information.

upvoted 0 times

...