For each of the following independent cases, determine the estimated effective tax rate to be used for the current quarter's interim statements

Case A Case B Case C Case D Year-to-date income (loss) $ 80,000 $(20,000) $(30,000) $(120,000) Projected income (loss) for the balance of the year 120,000 60,000 130,000 60,000 Permanent tax differences (tax-free income) 10,000 10,000 Estimated annual tax credits 7,000 2,000 Prior 2 years' income (loss) N/A (30,000) N/A 20,000 Prior 2 years' tax rate N/A 35% N/A 35% Is projected income "more likely than not"? N/A No Yes Yes Deferred tax liabilities expected to reverse in next 20 years N/A N/A N/A 3,000 Current statutory tax rate 40% 40% 40% 40%

Case A Case B Case C Case D
Year-to-date income (loss) $ 80,000 $(20,000) $ (30,000) $(120,000)
Projected income (loss) for

the balance of the year 120,000 60,000 130,000 60,000
Projected annual income $200,000 $ 40,000 $100,000 $ (60,000)
Permanent difference (10,000) -- (10,000) --
Taxable income $190,000 $ 40,000 $ 90,000 $ (60,000)

Tax (benefit) at statutory

rate (40%) $76,000 $16,000 $36,000 $(24,000)
Tax credits (7,000)

(2,000)
Net tax expense (benefit) $69,000 $16,000 $36,000 $(26,000)
Benefit limited to N/A 01 N/A (10,000)2
Estimated effective tax rate 34.5% 0% 36.0% 8.33%

Estimated effective tax rate = net tax / projected annual income

1 The YTD loss cannot be offset by projected income that is not "more likely than not." No carryback income is available for offset.
2 When the YTD loss exceeds the annual loss, the tax benefit and effective tax rate must be based on the YTD loss.

$20,000 (prior 2 years) x 35% + $3,000 (deferred tax credits) = $10,000 .