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

Sales	$	862,000
Cost of goods sold		432,000
Operating expenses		242,000

Additional Information

1. First-quarter income before taxes was $112,000, and the estimated effective annual tax rate was 40 percent. At the end of the second quarter, expected annual income is $660,000, and a dividend exclusion of $36,000 and a business tax credit of $15,000 are anticipated. The combined state and federal tax rate is 50 percent.
2. The $432,000 cost of goods sold is determined by using 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 $242,000 include a $72,000 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.

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

b. Prepare the income statement for the second quarter of 20X2. Your solution should include a computation of income tax (or benefit):

Answer is complete but not entirely correct.

CHRIS, INC.

Income Statement

For Three Months Ended June 30, 20X2

Salesselected answer correct

$862,000selected answer correct

Cost of goods soldselected answer correct

537,000selected answer correct

Gross profitselected answer correct

$325,000

Operating expenseselected answer correct

188,000selected answer correct

Income before taxesselected answer correct

$137,000

Income taxesselected answer correct

66,650selected answer incorrect

Net incomeselected answer correct

$70,350