Question

The income tax expense applicable to the second quarter's income statement is determined by:

Multiple Choice

a) subtracting the income tax expense applicable to the first quarter from the income tax expense applicable to the first two quarters.

b) multiplying the effective income tax rate times the income before tax for the second quarter.

c) subtracting the income tax liability applicable to the first quarter from the income tax liability applicable to the first two quarters.

d) dividing the estimated annual income tax expense by four and allocating the amount to the second quarter.

Answer 1

The answer is option a - subtracting the income tax expense applicable to the first quarter from the income tax expense applicable to the first two quarters.

After every quarter, income tax expense must be calculated from the first quarter till the end of the current quarter and then previous quarters income tax expense must be subtracted to find out the current quarters income tax expense. Hence, option 1 is correct.

Option b is wrong as effective income tax rate may change due to which previous quarters income tax expense may not be correct.

Option c is also wrong as it will result in finding out the second quarters income tax liability and not income expense.

Option d is also wrong as estimation may not be accurate which will result in inaccuracy of the income tax expense, which can be better found out with the method mentioned in option a.