Question

At the end of the second quarter of 20X1, Malta Corporation assembled the following information: 1. The first quarter resulted in a $130,000 loss before taxes. During the second quarter, sales were $1.240,000: purchases were $690.000: and operating expenses were $360,000. 2. Cost of goods sold is determined using the FIFO method. The inventory at the end of the first quarter was reduced by $44.000 to a lower-of-cost-or-market figure of $118.000. During the second quarter, replacement costs recovered, and by the end of the period. market value exceeded the ending inventory cost by $41,250. 3. The ending inventory is estimated using the gross profit method. The estimated gross profit rate is 46 percent. 4. At the end of the first quarter, the effective annual tax rate was estimated at 45 percent. At the end of the second quarter, expected annual income is $960,000. An investment tax credit of $15.000 and dividends received deduction of $142,500 are expected for the year. The combined state and federal tax rate is 40 percent. 5. The tax benefits from operating losses are assured beyond a reasonable doubt. Prior-years income totaling $50,000 is available for operating loss carrybacks. Required: a. Calculate the expected effective annual tax rate at the end of the second quarter for Malta. (Round your answer to 1 decimal place.) Estimated effective annual tax rate 32.5 %

Answer 1

solution nu a calculation of the expected effective annual tan rate at the end of second quarter for malta Particulars Amount ($) ncome from continuing operations $9,60.000 less': dividends received ($ 1,42.500) estimated taxable income $ 8.17.500 combined taxable rate 40% estimated ton before credits 3.27,000 (8.17,500 X 40.) Less': investment tax credit ($ 15,000] estimated Income Tax $ 3,12,000 • 32.50). effective annual tax rate (3,12,000 9,60,000 oud JIUNING

6 computation af Income stalement for the second Quarter of 2001 MALTA Conforation Income statement for three months ended June 30, 20X1 Amount(*) sales $18.40,000 cost of goods sold Beginning Inventory - $1118.000 Purchases - $6,90.000 $8.08.000 Goods quailable - Less: ending inventary (Warring Note-1) $1,38.400 $6.69,600 less recovery from Lom ($44,000) (6,25,600) 6.14.400 gross profit operating expenses ($ 3,60,000) $2,5u. 400 Income before Tad Income Taxes (from below table) (98.930) vet Income $1,55,4 to

Income (loss) Before tames Tax (Benefits) lestimated effective | Annual Tad Rate year to date period curent Period Less Reported Breviously in this year- to-date prouident Period ($ 1,30,00)61,30,000) 459. 289,54,900 1,24.400 32.5). (58.500) - (58,500) 40.430 (58,500) 98,930