Question

Questions 2: Angle Co. reported the following results for the six months ended June 30, 2019.

Income before tax $1,150,000

Income tax provision, or expense 276,000

The tax provision was based on an expected effective tax rate of 24% for the year ended December 31, 2019.

Now Angle is reporting the following results for the 3 months and 9 months ended September 30, 2019:

3-Months 9-Months

Income before tax $2,761,000 $5,711,000

The best estimate of the effective tax rate for the year is 21%.

What amount of tax expense should be recognized for the quarter (the 3 months ended September 30) and the year-to-date period (9 months ended September 30)? Be sure to explain your calculations.

Answer 1

> First we need to calculate the estimated tax for Year to date based on the best effective tax rate i.e 21%

Calculation of Estimated Tax for Year To Date based 21%
Income before Tax	Best Tax Rate	Tax Provision
5,711,000.00	21%	(1,199,310.00)

> The second step would be to calculate estimate tax of Q3 based on the best effective tax rate i.e 21%

Calculation of Estimated Tax for Q3 based 21%
Income before Tax	Best Tax Rate	Tax Provision
2,761,000.00	21%	(579,810.00)

> As you see that income before tax for 9 months is $ 5,711,000 and if we deduct Q3 income ($ 2,761,000) from that amount, we get the actual income at the end of Q2 ($2,950,000) > As the total Income reported at the end of Q2 ($1,150,000) seems less, we need to calculate and add the tax on differential amount ($1,800,000) of Income of Q2 at the best estimated tax rate of 21% > As there is also reduction in the estimated tax rate by 3%, we need to reduce the tax already reported by end of Q3 on the estimated income ($1,150,000) already reported by end of the same quarter > The calculation below gives the net effect of two adjustments i.e Addition of Tax on the less reported amount of Income before tax and reduction of tax on already reported tax income

Income before Tax	Best Tax Rate	Tax Provision
2,950,000.00	21%	(619,500.00)	To be Reported
1,150,000.00	24%	(276,000.00)	Already Reported
1,800,000.00		(343,500.00)	Adjustment to be made to Year to Date Calcuations

Thus the amount of tax expense for
Quarter three (the three months ended September 30) is	($579,810.00)
The year-to-date period (9 months ended September 30) is	($1,199,310.00)

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