Corriveau Industries decided to switch from an accelerated depreciation method to a straight-line method in the second quarter of 2016 . This is classified as a cumulative effect of a change in accounting principle

The first-quarter, pretax income reported was $30,000, and projected pretax income for 2016 was $90,000 . If Corriveau had used straight-line depreciation for the quarter, pretax income would have been $35,000 and projected pretax income for 2016 would have been $110,000 . The cumulative effect on prior years from the change is a $50,000 increase in retained earnings. The second-quarter income using straight-line depreciation is $20,000, and the expected annual earnings continue to be $110,000 . Assume that Corriveau is subject to a flat 25% statutory tax rate for 2016 . Corriveau is expecting $5,000 of tax-free income during the third and fourth quarters of 2016 . Required: For all categories of income, calculate the interim tax expense for the first quarter, first quarter restated, and second quarter.

Pre-tax income
Tax Expense (Benefit)
Period Inc Type Current YTD Effective% YTD Previous Current
Q1 ordinary 30,000 30,000 23.61% 7,083 - 7,083
Q1-R ordinary 35,000 35,000 23.86% 8,351 - 8,351

CECAP* 50,000 50,000
12,500 - 12,500
Q2 ordinary 20,000 55,000 23.86% 13,123 8,351 4,772
* the cumulative effect of the change in depreciation will be reported as a net-of-tax adjustment to the earliest-reported retained earnings balance. The incremental tax on the cumulative effect is $12,500 ($50,000 x 25%).

EFFECTIVE TAX RATE:

Q1 Q1-R Q2
Q1 30,000 35,000 35,000
Q2 - - 20,000
YTD actual 30,000 35,000 55,000
Projected annual income 90,000 110,000 110,000
Exempt (5,000) (5,000) (5,000)
Taxable income 85,000 105,000 105,000
Statutory rate 25.00% 25.00% 25.00%
Tax 21,250 26,250 26,250
Effective rate 23.61% 23.86% 23.86%

Effective rate = tax ÷ projected annual income