Final answer:
Intraperiod tax allocation separates tax expenses and associates them with different income components on the income statement for accurate presentation. For a company with a 40% tax rate, net income is adjusted to reflect pre-tax income and the associated tax amount. This ensures that the income statement accurately represents which portions of income were taxed.
Step-by-step explanation:
Intraperiod Tax Allocation on the Income Statement
Intraperiod tax allocation involves separating the tax expense and associating it with the different components that make up the total income on the income statement. This practice is important to accurately present which parts of income were affected by taxation. To reflect intraperiod tax allocation for a company with a tax rate of 40%, we must adjust the net income figures provided in the question.
To calculate after-tax income, we subtract the tax amount from the pre-tax income, which can be expressed as: National income minus taxes. Using this method, here's how the adjustment would look for one of the options:
Example: If a company's net income is reported as $180,000, you would determine the pre-tax income by dividing the net income by (1 - tax rate), which can be shown as $180,000 / (1 - 0.4) = $300,000. This is the amount before taxes. Then the tax amount is calculated by multiplying the pre-tax income by the tax rate: $300,000 * 0.4 = $120,000. The statement would then show a pre-tax income of $300,000 and a tax amount of $120,000, resulting in the same net income of $180,000
To reflect intraperiod tax allocation correctly, one would need to apply this calculation to each level of national income or Net Income option provided.