Detailed Answer
(b) The requirement is to determine what tax rate
should be used to calculate the income tax provision for interim
reporting. Each interim period is considered to be an integral
part of the annual period. Therefore, expectations for the annual
period must be reflected in the interim report. The income tax
expense should be calculated using the estimated annual effective
tax rate. The estimated tax rate should be updated as of the end
of each interim period (here, as of the second quarter). The statutory
tax rate is only a part of the effective tax. The effective tax
rate includes the statutory tax rate and a variety of other items.