Chris Inc. has accumulated information for its second-quarter income statement for 20X2:

1. First-quarter income before taxes was \(\$ 100,000\), and the estimated effective annual tax rate was 40 percent. At the end of the second quarter, expected annual income is \(\$ 600,000\), and a dividend exclusion of \(\$ 30,000\) and a business tax credit of \(\$ 15,000\) are anticipated. The combined state and federal tax rate is 50 percent.
2. The cost of goods sold of \(\$ 420,000\) is determined by the LIFO method and includes 7.500 units from the base layer, at a cost of \(\$ 12\) per unit. However, you have determined that these units are expected to be replaced at a cost of \(\$ 26\) per unit.
3. The operating expenses of \(\$ 230,000\) include a \(\$ 60,000\) factory rearrangement cost incurred in April. You have determined that the second quarter will receive about 25 percent of the benefits from this project, with the remainder benefiting the third and fourth quarters.
\section*{Required}

a. Calculate the expected annual effective tax rate at the end of the second quarter for Chris Inc.

b. Prepare the income statement for the second quarter of \(20 \mathrm{X} 2\). Your solution should include a computation of income tax (or benefit) with the following headings:

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Sales $850,000 Cost of goods sold 420,000 Operating expenses 230.000