# ASC 270-740-55: Interim Reporting — Income Taxes — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

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## ASC 270-740-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/270/740/#55-implementation-guidance-and-illustrations)

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##### [270-740-55-1](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-1)

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This Section, which is an integral part of the requirements of this Subtopic, provides Examples of applying the required accounting for interim period [income taxes](https://asc.understandingaccounting.org/glossary/i/#income-taxes "Domestic and foreign federal (national), state, and local (including franchise) taxes based on income.") to some specific situations. In general, the Examples illustrate matters unique to accounting for income taxes at interim dates. The Examples do not include consideration of the nature of tax credits and events that do not have [tax consequences](https://asc.understandingaccounting.org/glossary/t/#tax-consequences "The effects on income taxes—current or deferred—of an event.") or illustrate all possible combinations of circumstances.

#### Illustrations

##### [270-740-55-2](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-2)

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The following Cases illustrate the guidance in Sections 740-270-30 and 740-270-35 for accounting for income taxes applicable to [ordinary income (or loss)](https://asc.understandingaccounting.org/glossary/o/#ordinary-income-or-loss "Ordinary income (or loss) refers to income (or loss) from continuing operations before income taxes (or benefits) excluding significant unusual or infrequently occurring items. Discontinued operations and cumulative effects of changes in accounting principles are also excluded from this term. The term is not used in the income tax context of ordinary income versus capital gain. The meaning of unusual or infrequently occurring items is consistent with their use in the definitions of the terms unusual nature and infrequency of occurrence.") at an interim date if ordinary income is anticipated for the fiscal year:

1.  a
    
    Ordinary income in all interim periods (Case A)
    
2.  b
    
    Ordinary income and losses in interim periods (Case B)
    
3.  c
    
    Changes in estimates (Case C).

##### [270-740-55-3](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-3)

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Cases A and B share all of the following assumptions:

1.  a
    
    For the full fiscal year, an entity anticipates ordinary income of $100,000. All income is taxable in one jurisdiction at a 50 percent rate. Anticipated tax credits for the fiscal year total $10,000. No events that do not have tax consequences are anticipated. No changes in estimated ordinary income, tax rates, or tax credits occur during the year.
    
2.  b
    
    Computation of the estimated annual effective tax rate applicable to ordinary income is as follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-036602B8-D812-4E7B-926E-65131BC39AB9-low.gif)
        
        "Tax at statutory rate ($100,000 at 50%)" " $50,000 " Less anticipated tax credits " (10,000)" Net tax to be provided " $40,000 " "Estimated annual effective tax rate ($40,000 ÷ $100,000)" 40%
        
3.  c
    
    Tax credits are generally subject to limitations, usually based on the amount of tax payable before the credits. In computing the estimated annual effective tax rate, anticipated tax credits are limited to the amounts that are expected to be realized or are expected to be recognizable at the end of the current year in accordance with the provisions of Subtopic 740-10. If an entity is unable to estimate the amount of its tax credits for the year, see paragraphs
    
    [740-270-30-17 through 30-18](https://asc.understandingaccounting.org/asc/270/740/#270-740-30-17)
    
    .

##### [270-740-55-4](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-4)

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The entity has ordinary income in all interim periods. Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-7E672D80-5FB6-4173-A904-C1FAB7F65388-low.gif)
    
    Ordinary Income Tax Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $20,000 " " $20,000 " 40% " $8,000 " $- " $8,000 " Second quarter " 20,000 " " 40,000 " 40% " 16,000 " " 8,000 " " 8,000 " Third quarter " 20,000 " " 60,000 " 40% " 24,000 " " 16,000 " " 8,000 " Fourth quarter " 40,000 " " 100,000 " 40% " 40,000 " " 24,000 " " 16,000 " Fiscal year " $100,000 " " $40,000 "

##### [270-740-55-5](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-5)

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The following Cases illustrate ordinary income and losses in interim periods:

1.  a
    
    Year-to-date ordinary income (Case B1)
    
2.  b
    
    Year-to-date ordinary losses, realization more likely than not (Case B2)
    
3.  c
    
    Year-to-date ordinary losses, realization not more likely than not (Case B3).

##### [270-740-55-6](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-6)

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The entity has ordinary income and losses in interim periods; there is not an ordinary loss for the fiscal year to date at the end of any interim period. Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-6AF5D8AA-8089-4910-A4C4-C4A9103211A0-low.gif)
    
    Ordinary Income (Loss) Tax (or Benefit) Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $40,000 " " $40,000 " 40% " $16,000 " $- " $16,000 " Second quarter " 40,000 " " 80,000 " 40% " 32,000 " " 16,000 " " 16,000 " Third quarter " (20,000)" " 60,000 " 40% " 24,000 " " 32,000 " " (8,000)" Fourth quarter " 40,000 " " 100,000 " 40% " 40,000 " " 24,000 " " 16,000 " Fiscal year " $100,000 " " $40,000 "

##### [270-740-55-7](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-7)

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The entity has ordinary income and losses in interim periods, and there is an ordinary loss for the year to date at the end of an interim period. Established seasonal patterns provide evidence that realization in the current year of the tax [benefit](https://asc.understandingaccounting.org/glossary/b/#benefit "See Tax (or Benefit).") of the year-to-date loss and of anticipated tax credits is more likely than not. Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-F52226C7-3C47-45AB-B683-B8C95B1D397F-low.gif)
    
    Ordinary Income (Loss) Tax (or Benefit) Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $(20,000)" " $(20,000)" 40% " $(8,000)" $- " $(8,000)" Second quarter " 10,000 " " (10,000)" 40% " (4,000)" " (8,000)" " 4,000 " Third quarter " 15,000 " " 5,000 " 40% " 2,000 " " (4,000)" " 6,000 " Fourth quarter " 95,000 " " 100,000 " 40% " 40,000 " " 2,000 " " 38,000 " Fiscal year " $100,000 " " $40,000 "

##### [270-740-55-8](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-8)

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The entity has ordinary income and losses in interim periods, and there is a year-to-date ordinary loss during the year. There is no established seasonal pattern and it is more likely than not that the tax benefit of the year-to-date loss and the anticipated tax credits will not be realized in the current or future years. Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-9A3FBF9F-7E4D-467E-BF75-9CDF7A05737B-low.gif)
    
    Ordinary Income (Loss) Tax Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $(20,000)" " $(20,000)" — (a) $- $- $- Second quarter " 10,000 " " (10,000)" — (a) - - - Third quarter " 15,000 " " 5,000 " 40% " 2,000 " - " 2,000 " Fourth quarter " 95,000 " " 100,000 " 40% " 40,000 " " 2,000 " " 38,000 " Fiscal year " $100,000 " " $40,000 " (a) No benefit is recognized because the tax benefit of the year-to-date loss is not expected to be realized during the current year or recognizable as a deferred tax asset at the end of the current year in accordance with the provisions of Subtopic 740-10.

##### [270-740-55-9](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-9)

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During the fiscal year, all of an entity's operations are taxable in one jurisdiction at a 50 percent rate. No events that do not have tax consequences are anticipated. Estimates of ordinary income for the year and of anticipated credits at the end of each interim period are as shown below. Changes in the estimated annual effective tax rate result from changes in the ratio of anticipated tax credits to tax computed at the statutory rate. Changes consist of an unanticipated strike that reduced income in the second quarter, an increase in the capital budget resulting in an increase in anticipated investment tax credit in the third quarter, and better than anticipated sales and income in the fourth quarter. The entity has ordinary income in all interim periods. Computations of the estimated annual effective tax rate based on the estimate made at the end of each quarter are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-D053B7CC-BFDC-4788-8DDC-00341DF79B3A-low.gif)
    
    \+ "Estimated, end of" First Quarter Second Quarter Third Quarter Actual Fiscal Year Estimated ordinary income for the fiscal year " $100,000 " " $80,000 " " $80,000 " " $100,000 " Tax at 50% statutory rate " $50,000 " " $40,000 " " $40,000 " " $50,000 " Less anticipated credits " (5,000)" " (5,000)" " (10,000)" " (10,000)" Net tax to be provided " $45,000 " " $35,000 " " $30,000 " " $40,000 " Estimated annual effective tax rate 45% 43.75% 37.5% 40%

##### [270-740-55-10](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-10)

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Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-38D6E032-9E1E-4FED-9D2E-1F9D86E47F56-low.gif)
    
    Ordinary Income Tax Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $25,000 " " $25,000 " 45% " $11,250 " $- " $11,250 " Second quarter " 5,000 " " 30,000 " 43.75% " 13,125 " " 11,250 " " 1,875 " Third quarter " 25,000 " " 55,000 " 37.5% " 20,625 " " 13,125 " " 7,500 " Fourth quarter " 45,000 " " 100,000 " 40% " 40,000 " " 20,625 " " 19,375 " Fiscal year " $100,000 " " $40,000 "

##### [270-740-55-11](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-11)

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The following Cases illustrate the guidance in Section 740-270-30 for accounting for income taxes applicable to ordinary income (or loss) at an interim date if an ordinary loss is anticipated for the fiscal year:

1.  a
    
    Realization of the tax benefit of the loss is more likely than not (Case A)
    
2.  b
    
    Realization of the tax benefit of the loss is not more likely than not (Case B)
    
3.  c
    
    Partial realization of the tax benefit of the loss is more likely than not (Case C)
    
4.  d
    
    Reversal of net deferred tax credits (Case D).

##### [270-740-55-12](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-12)

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Cases A, B, and C share the following assumptions.

1.  a
    
    For the full fiscal year, an entity anticipates an ordinary loss of $100,000. The entity operates entirely in one jurisdiction where the tax rate is 50 percent. Anticipated tax credits for the fiscal year total $10,000. No events that do not have tax consequences are anticipated.
    
2.  b
    
    If there is a recognizable tax benefit for the loss and the tax credits pursuant to the requirements of Subtopic 740-10, computation of the estimated annual effective tax rate applicable to the ordinary loss would be as follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-CE58B982-EAAB-4570-8008-7271AF50EC68-low.gif)
        
        "Tax benefit at statutory rate ($100,000 at 50%)" " $(50,000)" Tax credits " (10,000)" Net tax benefit " $(60,000)" "Estimated annual effective tax rate ($60,000 ÷ $100,000)" 60%

##### [270-740-55-13](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-13)

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Cases A, B, and C state varying assumptions with respect to assurance of realization of the components of the net tax benefit. When the realization of a component of the benefit is not expected to be realized during the current year or recognizable as a [deferred tax asset](https://asc.understandingaccounting.org/glossary/d/#deferred-tax-asset "The deferred tax consequences attributable to deductible temporary differences and carryforwards. A deferred tax asset is measured using the applicable enacted tax rate and provisions of the enacted tax law. A deferred tax asset is reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.") at the end of the current year in accordance with the provisions of Subtopic 740-10, that component is not included in the computation of the estimated annual effective tax rate.

##### [270-740-55-14](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-14)

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The following Cases illustrate when realization of the tax benefit of the loss is more likely than not:

1.  a
    
    Ordinary losses in all interim periods (Case A1)
    
2.  b
    
    Ordinary income and losses in interim periods (Case A2).

##### [270-740-55-15](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-15)

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The entity has ordinary losses in all interim periods. The full tax benefit of the anticipated ordinary loss and the anticipated tax credits will be realized by carryback. Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-12AF3B54-C130-4338-A2E7-752C9CCDD6DA-low.gif)
    
    Ordinary Loss Tax Benefit Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $(20,000)" " $(20,000)" 60% " $(12,000)" $- " $(12,000)" Second quarter " (20,000)" " (40,000)" 60% " (24,000)" " (12,000)" " (12,000)" Third quarter " (20,000)" " (60,000)" 60% " (36,000)" " (24,000)" " (12,000)" Fourth quarter " (40,000)" " (100,000)" 60% " (60,000)" " (36,000)" " (24,000)" Fiscal year " $(100,000)" " $(60,000)"

##### [270-740-55-16](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-16)

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The entity has ordinary income and losses in interim periods and for the year to date. The full tax benefit of the anticipated ordinary loss and the anticipated tax credits will be realized by carryback. The full tax benefit of the maximum year-to-date ordinary loss can also be realized by carryback. Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-027B04D1-BE4C-40AF-9ABA-64F63230C6F4-low.gif)
    
    Ordinary Income (Loss) Tax (or Benefit) Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $20,000 " " $20,000 " 60% " $12,000 " $- " $12,000 " Second quarter " (80,000)" " (60,000)" 60% " (36,000)" " 12,000 " " (48,000)" Third quarter " (80,000)" " (140,000)" 60% " (84,000)" " (36,000)" "(48,000)" Fourth quarter " 40,000 " " (100,000)" 60% " (60,000)" "(84,000)" "24,000" Fiscal year " $(100,000)" " $(60,000)" (a) Footnote superseded by Accounting Standards Update No. 2019-12.

##### [270-740-55-17](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-17)

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In Cases A1 and A2, if neither the tax benefit of the anticipated loss for the fiscal year nor anticipated tax credits were recognizable pursuant to Subtopic 740-10, the estimated annual effective tax rate for the year would be zero and no [tax (or benefit)](https://asc.understandingaccounting.org/glossary/t/#tax-or-benefit "Tax (or benefit) is the total income tax expense (or benefit), including the provision (or benefit) for income taxes both currently payable and deferred.") would be recognized in any quarter. That conclusion is not affected by changes in the mix of income and loss in interim periods during a fiscal year. However, see paragraph [740-270-30-18](https://asc.understandingaccounting.org/asc/270/740/#270-740-30-18).

##### [270-740-55-18](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-18)

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The following Cases illustrate when partial realization of the tax benefit of the loss is more likely than not:

1.  a
    
    Ordinary losses in all interim periods (Case C1)
    
2.  b
    
    Ordinary income and losses in interim periods (Case C2).

##### [270-740-55-19](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-19)

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Effective as of: not established by retrieval timestamps.


The entity has an ordinary loss in all interim periods. It is more likely than not that the tax benefit of the loss in excess of $40,000 of prior income available to be offset by carryback ($20,000 of tax at the 50 percent statutory rate) will not be realized. Therefore the estimated annual effective tax rate is 20 percent ($20,000 benefit more likely than not to be realized divided by $100,000 estimated fiscal year ordinary loss). Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-A33EA674-3845-4B5A-A7F5-5C7234A452E2-low.gif)
    
    Ordinary Loss Tax Benefit Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $(20,000)" " $(20,000)" 20% " $(4,000)" $- " $(4,000)" Second quarter " (20,000)" " (40,000)" 20% " (8,000)" " (4,000)" " (4,000)" Third quarter " (20,000)" " (60,000)" 20% " (12,000)" " (8,000)" " (4,000)" Fourth quarter " (40,000)" " (100,000)" 20% " (20,000)" " (12,000)" " (8,000)" Fiscal year " $(100,000)" " $(20,000)"

##### [270-740-55-20](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-20)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:0e229ce9ae583f95a990036b0d457e4a4a4033aaadf26996fe58be9744123315

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The entity has ordinary income and losses in interim periods and for the year to date. It is more likely than not that the tax benefit of the anticipated ordinary loss in excess of $40,000 of prior income available to be offset by carryback ($20,000 of tax at the 50 percent statutory rate) will not be realized. Therefore the estimated annual effective tax rate is 20 percent ($20,000 benefit more likely than not to be realized divided by $100,000 estimated fiscal year ordinary loss), and the benefit that can be recognized for the year to date is limited to $20,000 (the benefit that is more likely than not to be realized). Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-01EFF2C5-6787-43DC-9069-9E9C9C955662-low.gif)
    
    Ordinary Income (Loss) Tax (or benefit) Year-to-Date Reporting Period Ordinary Income (Loss) Year-to-Date Estimated Annual Effective Tax Rate Computed Limited to Less Previously Provided Reporting Period First quarter " $20,000 " " $20,000 " 20% " $4,000 " $- " $4,000 " Second quarter " (80,000)" " (60,000)" 20% " (12,000)" " 4,000 " " (16,000)" Third quarter " (80,000)" " (140,000)" 20% " (28,000)" " $(20,000)" " (12,000)" " (8,000)" Fourth quarter " 40,000 " " (100,000)" 20% " (20,000)" " (20,000)" - Fiscal year " $(100,000)" " $(20,000)"

##### [270-740-55-21](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-21)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:7d34cad3c8c1011083231c5d9418448ea38bc68f1797d5f378d6f9bc532a5116

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The entity anticipates a fiscal year ordinary loss. The loss cannot be carried back, and future profits exclusive of reversing temporary differences are unlikely. Net deferred tax liabilities arising from existing net taxable temporary differences are present. A portion of the existing net taxable temporary differences relating to those liabilities will reverse within the loss carryforward period. Computation of the estimated annual effective tax rate to be used (see paragraphs

[740-270-30-32 through 30-33](https://asc.understandingaccounting.org/asc/270/740/#270-740-30-32)

) is as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-71B113B1-9028-4A3E-89B8-9FBCD6BCD848-low.gif)
    
    Estimated fiscal year ordinary loss " $(100,000)" The tax benefit to be recognized is the lesser of: "Tax effect of the loss carryforward ($100,000 at 50% statutory rate)" " $50,000 " Amount of the net deferred tax liabilities that would otherwise have been settled during the carry-forward period " $24,000 " "Estimated annual effective tax rate ($24,000 ÷ $100,000)" 24%

##### [270-740-55-22](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-22)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:a699092fd92215caf7800bac9dae64619faba953c30bfa92dee6a29977339a41

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-1591EF53-178C-41C3-84CD-FF39B5E81802-low.gif)
    
    Ordinary Loss Tax Benefit Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $(20,000)" " $(20,000)" 24% " $(4,800)" $- " $(4,800)" Second quarter " (20,000)" " (40,000)" 24% " (9,600)" " (4,800)" " (4,800)" Third quarter " (20,000)" " (60,000)" 24% " (14,400)" " (9,600)" " (4,800)" Fourth quarter " (40,000)" " (100,000)" 24% " (24,000)" " (14,400)" " (9,600)" Fiscal year " $(100,000)" " $(24,000)"

##### [270-740-55-23](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-23)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:0faf3ddfb2d4a9e672f3da639464084723f7dfd52ad46c72f6ed63bda950cfe1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Note that changes in the timing of the loss by quarter would not change this computation.

##### [270-740-55-24](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-24)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:75b81f235a1b25c33f841f579b34208af98e0db6f1e246f9a4a38e44ea011ddf

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following Cases illustrate accounting for income taxes applicable to unusual or infrequently occurring items when ordinary income is expected for the fiscal year:

1.  a
    
    Realization of the tax benefit is more likely than not at date of occurrence (Case A)
    
2.  b
    
    Realization of the tax benefit not more likely than not at date of occurrence (Case B).

##### [270-740-55-25](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-25)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:1ec4d5c77fdd50afa77759892c886d87bf08d05dd55b697e8a8cf192f3d85847

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Cases A and B illustrate the computation of the tax (or benefit) applicable to unusual or infrequently occurring items when ordinary income is anticipated for the fiscal year. These Cases are based on the assumptions and computations presented in paragraph [740-270-55-3](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-3) and Example 1, Cases A and B (see paragraphs

[740-270-55-4 through 55-8](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-4)

), plus additional information supplied in Cases A and B of this Example. The computation of the tax (or benefit) applicable to the ordinary income is not affected by the occurrence of an unusual or infrequently occurring item; therefore, each Case refers to one or more of the illustrations of that computation in Example 1, Cases A and B (see paragraphs

[740-270-55-4 through 55-8](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-4)

), and does not reproduce the computation and the assumptions. The income statement display for tax (or benefit) applicable to unusual or infrequently occurring items is illustrated in Example 7 (see paragraph [740-270-55-52](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-52)).

##### [270-740-55-26](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-26)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:5ccb6a0089b7b4273c914f5b0c2f597cb368f6f69343571276f89ea405ef39ce

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As explained in paragraph [740-270-55-25](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-25), this Case is based on the computations of tax applicable to ordinary income that are illustrated in Example 1, Case A (see paragraph [740-270-55-4](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-4)). In addition, the entity experiences a tax-deductible unusual or infrequently occurring loss of $50,000 (tax benefit $25,000) in the second quarter. Because the loss can be carried back, it is more likely than not that the tax benefit will be realized at the time of occurrence. Quarterly tax provisions are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-07C65BB9-755E-4671-AB73-749BB45C8911-low.gif)
    
    Tax (or Benefit) Applicable to Reporting Period Ordinary Income "Unusual, Infrequently Occurring, or Extraordinary Loss" Ordinary Income "Unusual, Infrequently Occurring, or Extraordinary Loss" First quarter " $20,000 " " $8,000 " Second quarter " 20,000 " " $(50,000)" " 8,000 " " $(25,000)" Third quarter " 20,000 " " 8,000 " Fourth quarter " 40,000 " " 16,000 " Fiscal year " $100,000 " " $(50,000)" " $40,000 " " $(25,000)"

##### [270-740-55-27](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-27)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:8ccd0cc55db70de7edc21e2e8322d6436dc44e6526a8fae79f80d59643ba9167

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Note that changes in assumptions would not change the timing of the recognition of the tax benefit applicable to the unusual or infrequently occurring item as long as realization is more likely than not.

##### [270-740-55-28](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-28)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:0c0dad3c1218e6116bb207c4063e515fb803d6e6a4fafafccdfb074e7cdfb296

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As explained in paragraph [740-270-55-25](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-25), this Case is based on the computations of tax applicable to ordinary income that are illustrated in Example 1, Cases A and B1 (see paragraphs

[740-270-55-4 through 55-6](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-4)

). In addition, the entity experiences a tax-deductible unusual or infrequently occurring loss of $50,000 (potential benefit $25,000) in the second quarter. The loss cannot be carried back, and available evidence indicates that a [valuation allowance](https://asc.understandingaccounting.org/glossary/v/#valuation-allowance "The portion of a deferred tax asset for which it is more likely than not that a tax benefit will not be realized.") is needed for all of the deferred tax asset. As a result, the tax benefit of the unusual or infrequently occurring loss is recognized only to the extent of offsetting ordinary income for the year to date. Quarterly tax provisions under two different assumptions for the occurrence of ordinary income are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-D1FC8685-0745-40A0-87E5-9E8C9EC29B7E-low.gif)
    
    Tax (or Benefit) Applicable to Assumptions and Reporting Period Ordinary Income (Loss) "Unusual, Infrequently Occurring, or Extraordinary Loss" Ordinary Income (Loss) "Unusual, Infrequently Occurring, or Extraordinary Loss" Reporting Period Year-to-Date Year-to-Date Less Previously Provided Reporting Period Income in all quarters: First quarter " $20,000 " " $8,000 " " $8,000 " Second quarter " 20,000 " " $(50,000)" " 8,000 " " 16,000 " " $(16,000)" $- " $(16,000)" Third quarter " 20,000 " " 8,000 " " 24,000 " " (24,000)" " (16,000)" " (8,000)" Fourth quarter " 40,000 " " 16,000 " " 40,000 " " (25,000)" " (24,000)" " (1,000)" Fiscal year " $100,000 " " $(50,000)" " $40,000 " " $(25,000)" Income and loss quarters: First quarter " $40,000 " " $16,000 " " $16,000 " Second quarter " 40,000 " " $(50,000)" " 16,000 " " 32,000 " " $(25,000)" $- " $(25,000)" Third quarter " (20,000)" " (8,000)" " 24,000 " " (24,000)" " (25,000)" " 1,000 " Fourth quarter " 40,000 " " 16,000 " " 40,000 " " (25,000)" " (24,000)" " (1,000)" Fiscal year " $100,000 " " $(50,000)" " $40,000 " " $(25,000)"

##### [270-740-55-29](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-29)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:ef35be00044ad6cfc2d0e350c9a0e7802d2d7b31c5a63a3d590810d48d0f393b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the guidance in paragraph [740-270-45-7](https://asc.understandingaccounting.org/asc/270/740/#270-740-45-7). An entity anticipates ordinary income for the year of $100,000 and tax credits of $10,000. The entity has ordinary income in all interim periods. The estimated annual effective tax rate is 40 percent, computed as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-05E317B0-19B8-4479-9881-139EB0571AAC-low.gif)
    
    Estimated pretax income " $100,000 " Tax at 50% statutory rate " $50,000 " Less anticipated credits " (10,000)" Net tax to be provided " $40,000 " Estimated annual effective tax rate 40%

##### [270-740-55-30](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-30)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:59cd8da04324e8befaefeef843dd5e9de53ac98c5550c9d88834e0474c70aea7

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Quarterly tax computations for the first two quarters are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-AF4FE422-1FF8-49F8-8528-F11C36451388-low.gif)
    
    Ordinary Income Tax Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $20,000 " " $20,000 " 40% " $8,000 " $- " $8,000 " Second quarter " 25,000 " " 45,000 " 40% " 18,000 " " 8,000 " " 10,000 "

##### [270-740-55-31](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-31)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:f2ed048052fe4e032080319ecb996dd92296ba2da746eea9750b507ae0723756

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In the third quarter a decision is made to discontinue the operations of Division X, a segment of the business that has recently operated at a loss (before income taxes). The pretax income (and losses) of the continuing operations of the entity and of Division X through the third quarter and the estimated fourth quarter results are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-8D4ACFB2-5FBD-4B22-805E-90CF4014F730-low.gif)
    
    Division X Reporting Period Revised Ordinary Income from Continuing Operations Loss from Operations Provision for Loss on Disposal First quarter " $25,000 " " $(5,000)" Second quarter " 35,000 " " (10,000)" Third quarter " 50,000 " " (10,000)" " $(55,000)" Fourth quarter " 50,000 " (a) - - Fiscal year " $160,000 " " $(25,000)" " $(55,000)" (a) Estimated.

##### [270-740-55-32](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-32)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:4ba9c338fed7841dc3239fcea8ff8e3a5a73ec88a4337eb041a5c05fadf9a5d5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


No changes have occurred in continuing operations that would affect the estimated annual effective tax rate. Anticipated annual tax credits of $10,000 included $2,000 of credits related to the operations of Division X. The revised estimated annual effective tax rate applicable to ordinary income from continuing operations is 45 percent, computed as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-234D9A59-20F3-415A-AA09-CEEBFBBE71DB-low.gif)
    
    Estimated ordinary income from continuing operations " $160,000 " Tax at 50% statutory rate " 80,000 " Less anticipated tax credits applicable to continuing operations " (8,000)" Net tax to be provided " $72,000 " Estimated annual effective tax rate 45%

##### [270-740-55-33](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-33)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:9bdd387ef44eefd97fa5d6ea57b780a2f837e22bb6a8d84d98b39ad1037e09f2

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Quarterly computations of tax applicable to ordinary income from continuing operations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-0EDAF8ED-5E7B-4980-A6F0-C9ECA6997EE4-low.gif)
    
    Ordinary Income Tax Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $25,000 " " $25,000 " 45% " $11,250 " $- " $11,250 " Second quarter " 35,000 " " 60,000 " 45% " 27,000 " " 11,250 " " 15,750 " Third quarter " 50,000 " " 110,000 " 45% " 49,500 " " 27,000 " " 22,500 " Fourth quarter " 50,000 " " 160,000 " 45% " 72,000 " " 49,500 " " 22,500 " Fiscal year " $160,000 " " $72,000 "

##### [270-740-55-34](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-34)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:55a69255978ecd8fa559e5f0ebd500b882c51bef2d9fd79966d87d77d7274cbe

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Tax benefit applicable to Division X for the first two quarters is computed as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-91167D60-1186-4971-84B6-0C048ABB6875-low.gif)
    
    Tax Applicable to Ordinary Income Previously Reported Recomputed (Above) Tax Benefit Applicable to Division X Reporting Period (A) (B) (A-B) First quarter " $8,000 " " $11,250 " " $(3,250)" Second quarter " 10,000 " " 15,750 " " (5,750)" " $(9,000)"

##### [270-740-55-35](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-35)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:2bd46e9f07a7f608c09128cba9248ea0c0e01f7f893f268068f4777fad634118

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The third quarter tax benefits applicable to both the loss from operations and the provision for loss on disposal of Division X are computed based on estimated annual income with and without the effects of the Division X losses. Current year tax credits related to the operations of Division X have not been recognized. It is assumed that the tax benefit of those credits will not be realized because of the discontinuance of Division X operations. Any reduction in tax benefits resulting from recapture of previously recognized tax credits resulting from discontinuance or current year tax credits applicable to the discontinued operations would be reflected in the tax benefit recognized for the loss on disposal or loss from operations as appropriate. If, because of capital gains and losses, and so forth, the individually computed tax effects of the items do not equal the aggregate tax effects of the items, the aggregate tax effects are allocated to the individual items in the same manner that they will be allocated in the annual financial statements. The computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-EB60B71A-D34F-4FAF-9BF4-8BBCF2B80E94-low.gif)
    
    Loss from Operations Division X Provision for Loss on Disposal Estimated annual income from continuing operations " $160,000 " " $160,000 " Loss from Division X operations " (25,000)" Provision for loss on disposal of Division X " (55,000)" Total " $135,000 " " $105,000 " Tax at 50% statutory rate " $67,500 " " $52,500 " Anticipated credits from continuing operations " (8,000)" " (8,000)" Tax credits of Division X and recapture of previously recognized tax credits resulting from discontinuance - - Taxes on income after effect of Division X losses " 59,500 " " 44,500 " Taxes on income before effect of Division X losses—see computation above " 72,000 " " 72,000 " Tax benefit applicable to the losses of Division X " (12,500)" " (27,500)" Amounts previously recognized—see computation above " (9,000)" - Tax benefit recognized in third quarter " $(3,500)" " $(27,500)"

##### [270-740-55-36](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-36)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:a5d378efecfe11086c8acd1eac346feabb4744011bc5d9683e760a9bede4c3dd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The resulting revised quarterly tax provisions are summarized as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-A7C8405D-AD09-4D32-A4E6-E647676B87C9-low.gif)
    
    Pretax Income (Loss) Tax (or Benefit) Applicable to Reporting Period Continuing Operations Operations of Division X Provisions for Loss on Disposal Continuing Operations Operations of Division X Provisions for Loss on Disposal First quarter " $25,000 " " $(5,000)" " $11,250 " " $(3,250)" Second quarter " 35,000 " " (10,000)" " 15,750 " " (5,750)" Third quarter " 50,000 " " (10,000)" " $(55,000)" " 22,500 " " (3,500)" " $(27,500)" Fourth quarter " 50,000 " " 22,500 " Fiscal year " $160,000 " " $(25,000)" " $(55,000)" " $72,000 " " $(12,500)" " $(27,500)"

##### [270-740-55-37](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-37)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:742f57bb96b9ee2509c40ab96b80380d25cdaa98f3b516d7159cd005d0d87792

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The following Cases illustrate the guidance in paragraph [740-270-30-36](https://asc.understandingaccounting.org/asc/270/740/#270-740-30-36) for accounting for income taxes applicable to ordinary income if an entity is subject to tax in multiple jurisdictions:

1.  a
    
    Ordinary income in all jurisdictions (Case A)
    
2.  b
    
    Ordinary loss in a jurisdiction; realization of the tax benefit not more likely than not (Case B)
    
3.  c
    
    Ordinary income or tax cannot be estimated in one jurisdiction (Case C).

##### [270-740-55-38](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-38)

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Cases A, B, and C assume that an entity operates through separate corporate entities in two countries. Applicable tax rates are 50 percent in the United States and 20 percent in Country A. The entity has no unusual or infrequently occurring items during the fiscal year and anticipates no tax credits or events that do not have tax consequences. (The effect of foreign tax credits and the necessity of providing tax on undistributed earnings are ignored because of the wide range of tax planning alternatives available.) For the full fiscal year the entity anticipates ordinary income of $60,000 in the United States and $40,000 in Country A. The entity is able to make a reliable estimate of its Country A ordinary income and tax for the fiscal year in dollars. Computation of the overall estimated annual effective tax rate in Cases B and C is based on additional assumptions stated in those Cases.

##### [270-740-55-39](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-39)

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Effective as of: not established by retrieval timestamps.


Computation of the overall estimated annual effective tax rate is as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-7D4315B6-4998-4BA1-9D43-BCD0FAE85E26-low.gif)
    
    Anticipated ordinary income for the fiscal year: In the United States " $60,000 " In Country A " 40,000 " Total " $100,000 " Anticipated tax for the fiscal year: "In the United States ($60,000 at 50% statutory rate)" " $30,000 " "In Country A ($40,000 at 20% statutory rate)" " 8,000 " Total " $38,000 " "Overall estimated annual effective tax rate ($38,000 ÷ $100,000)" 38%

##### [270-740-55-40](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-40)

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Record version: sha256:2fc27a71196839d6c74a55f8b444c023a0e4128dc62e63ca29fc7b40bdbdffae

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-DA6451DA-CC23-4B4C-9C7D-85629EC49BC0-low.gif)
    
    Ordinary Income Tax Reporting Period United States Country A Total Year-to-Date Overall Estimated Annual Effective Tax Rate Year-to-Date Less Previously Reported Reporting Period First quarter " $5,000 " " $15,000 " " $20,000 " " $20,000 " 38% " $7,600 " $- " $7,600 " Second quarter " 10,000 " " 10,000 " " 20,000 " " 40,000 " 38% " 15,200 " " 7,600 " " 7,600 " Third quarter " 10,000 " " 10,000 " " 20,000 " " 60,000 " 38% " 22,800 " " 15,200 " " 7,600 " Fourth quarter " 35,000 " " 5,000 " " 40,000 " " 100,000 " 38% " 38,000 " " 22,800 " " 15,200 " Fiscal year " $60,000 " " $40,000 " " $100,000 " " $38,000 "

##### [270-740-55-41](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-41)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:36701a0c08523613c371dd16ab94f27ac13be715d7d13414121c30f6e96d2125

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In this Case, the entity operates through a separate corporate entity in Country B. Applicable tax rates in Country B are 40 percent. Operations in Country B have resulted in losses in recent years and an ordinary loss is anticipated for the current fiscal year in Country B. It is expected that the tax benefit of those losses will not be recognizable as a deferred tax asset at the end of the current year pursuant to Subtopic 740-10; accordingly, no tax benefit is recognized for losses in Country B, and interim period tax (or benefit) is separately computed for the ordinary loss in Country B and for the overall ordinary income in the United States and Country A. The tax applicable to the overall ordinary income in the United States and Country A is computed as in Case A of this Example. Quarterly tax provisions are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-8038F2E3-EA02-4AED-AFCB-70F684F4C6B1-low.gif)
    
    Ordinary Income (or Loss) Tax (or Benefit) Reporting Period United States Country A Combined Excluding Country B Country B Total Combined Excluding Country B Country B Total First quarter " $5,000 " " $15,000 " " $20,000 " " $(5,000)" " $15,000 " " $7,600 " $- " $7,600 " Second quarter " 10,000 " " 10,000 " " 20,000 " " (25,000)" " (5,000)" " 7,600 " - " 7,600 " Third quarter " 10,000 " " 10,000 " " 20,000 " " (5,000)" " 15,000 " " 7,600 " - " 7,600 " Fourth quarter " 35,000 " " 5,000 " " 40,000 " " (5,000)" " 35,000 " " 15,200 " - " 15,200 " Fiscal year " $60,000 " " $40,000 " " $100,000 " " $(40,000)" " $60,000 " " $38,000 " $- " $38,000 "

##### [270-740-55-42](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-42)

Pending content: no

Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:5e7dccc6eace585cbf8f8b8c67b63b1209ae54e51401f28064538b4cd16015e8

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In this Case, the entity operates through a separate corporate entity in Country C. Applicable tax rates in Country C are 40 percent in foreign currency. Depreciation in that country is large and exchange rates have changed in prior years. The entity is unable to make a reasonable estimate of its ordinary income for the year in Country C and thus is unable to reasonably estimate its annual effective tax rate in Country C in dollars. Accordingly, tax (or benefit) in Country C is separately computed as ordinary income (or loss) occurs in Country C. The tax applicable to the overall ordinary income in the United States and Country A is computed as in Case A of this Example. Quarterly computations of tax applicable to Country C are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-6DCB65BA-B753-42CD-A37E-A1A3EB2C34BC-low.gif)
    
    Foreign Currency (FC) Amounts Translated Amounts in Dollars Reporting Period Ordinary Income in Reporting Period Tax (at 40% rate) Ordinary Income in Reporting Period Tax First quarter " FC 10,000 " " FC 4,000 " " $12,500 " " $3,000 " Second quarter " 5,000 " " 2,000 " " 8,750 " " 1,500 " Third quarter " 30,000 " " 12,000 " " 27,500 " " 9,000 " Fourth quarter " 15,000 " " 6,000 " " 16,250 " " 4,500 " Fiscal year " FC 60,000 " " FC 24,000 " " $65,000 " " $18,000 "

##### [270-740-55-43](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-43)

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

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Quarterly tax provisions are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-4B756A19-9C83-4BFE-8385-D5A2097CDD0A-low.gif)
    
    Ordinary Income Tax Reporting Period United States Country A Combined Excluding Country C Country C Total Combined Excluding Country C Country C Total First quarter " $5,000 " " $15,000 " " $20,000 " " $12,500 " " $32,500 " " $7,600 " " $3,000 " " $10,600 " Second quarter " 10,000 " " 10,000 " " 20,000 " " 8,750 " " 28,750 " " 7,600 " " 1,500 " " 9,100 " Third quarter " 10,000 " " 10,000 " " 20,000 " " 27,500 " " 47,500 " " 7,600 " " 9,000 " " 16,600 " Fourth quarter " 35,000 " " 5,000 " " 40,000 " " 16,250 " " 56,250 " " 15,200 " " 4,500 " " 19,700 " Fiscal year " $60,000 " " $40,000 " " $100,000 " " $65,000 " " $165,000 " " $38,000 " " $18,000 " " $56,000 "

##### [270-740-55-44](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-44)

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The following Cases illustrate the guidance in paragraphs

[740-270-25-5 through 25-6](https://asc.understandingaccounting.org/asc/270/740/#270-740-25-5)

for accounting in interim periods for the effect of new tax legislation on income taxes when legislation is effective in a future interim period.

1.  a
    
    [Subparagraph superseded by Accounting Standards Update No. 2019-12](https://asc.understandingaccounting.org/updates/asu-2019-12/).
    
2.  b
    
    [Subparagraph superseded by Accounting Standards Update No. 2019-12](https://asc.understandingaccounting.org/updates/asu-2019-12/).

##### [270-740-55-45](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-45)

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Record version: sha256:035b00bdd0afeba516979331742de082b796b466a0d9746a25eb5c3d1c37ef59

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The assumed facts applicable to this Example follow.

##### [270-740-55-46](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-46)

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For the full fiscal year, an entity anticipates ordinary income of $100,000. All income is taxable in one jurisdiction at a 50 percent rate. Anticipated tax credits for the fiscal year total $10,000. No events that do not have tax consequences are anticipated.

##### [270-740-55-47](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-47)

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Record version: sha256:1081fbfe3beba9c0b94ef8bd1cad5e70380a117369e9a07f898b1d176575726a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Computation of the estimated annual effective tax rate applicable to ordinary income is as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-606BB421-3BA9-49DF-B7D8-9639FC832F94-low.gif)
    
    "Tax at statutory rate ($100,000 at 50%)" " $50,000 " Less anticipated tax credits " (10,000)" Net tax to be provided " $40,000 " "Estimated annual effective tax rate ($40,000 ÷ $100,000)" 40%

##### [270-740-55-48](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-48)

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Effective as of: not established by retrieval timestamps.


Further, assume that new legislation creating additional tax credits is enacted during the second quarter of the entity's fiscal year. The new legislation is effective on the first day of the third quarter. As a result of the estimated effect of the new legislation, the entity revises its estimate of its annual effective tax rate to the following.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-A5083201-1453-4B5B-965B-11ABCF5B605F-low.gif)
    
    "Tax at statutory rate ($100,000 at 50%)" " $50,000 " Less anticipated tax credits " (12,000)" Net tax to be provided " $38,000 " "Estimated annual effective tax rate ($38,000 ÷ $100,000)" 38%

##### [270-740-55-49](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-49)

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Effective as of: not established by retrieval timestamps.


The effect of the new legislation shall be reflected in the computation of the annual effective tax rate beginning in the first interim period that includes the enactment date of the new legislation. Accordingly, quarterly tax computations are as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-50A3927F-8D9A-4D4F-8694-97CD8D6F6EEE-low.gif)
    
    Ordinary Income Tax Reporting Period Reporting Period Year-to-Date Estimated Annual Effective Tax Rate Year-to-Date Less Previously Provided Reporting Period First quarter " $20,000 " " $20,000 " 40% "$ 8,000" $- "$ 8,000" Second quarter " 20,000 " " 40,000 " 38% "15,200" "8,000" "7,200" Third quarter " 20,000 " " 60,000 " 38% "22,800" "15,200" "7,600" Fourth quarter " 40,000 " " 100,000 " 38% "38,000" "22,800" "15,200" Fiscal year " $100,000 " "$ 38,000"

##### [270-740-55-50](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-50)

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Source downloaded (UTC): 2026-09-09T23:20:44.855Z to 2026-09-09T23:20:44.855Z

Record version: sha256:385a55979bcb0b73c0d7194a97e6278031da835937f7c9b7b5aa67748dc9e248

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Paragraph superseded by Accounting Standards Update No. 2019-12](https://asc.understandingaccounting.org/updates/asu-2019-12/)

##### [270-740-55-51](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-51)

Pending content: no

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Record version: sha256:4f2f591d67c4e9a26dac2836a4984ac842225b8ba3c2990fe51f4ff75ea3abc8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Paragraph superseded by Accounting Standards Update No. 2019-12](https://asc.understandingaccounting.org/updates/asu-2019-12/)

##### [270-740-55-52](https://asc.understandingaccounting.org/asc/270/740/#270-740-55-52)

Pending content: no

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Record version: sha256:e7dcc71536d0dc5fb545e6bb8990d7f2797aff3a75c65adabc49b8a6ddc92446

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Effective as of: not established by retrieval timestamps.


The following illustrates the location in an income statement display of the various tax amounts computed under this Subtopic.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-920A2660-5567-4757-8554-D23B9F2BD544-low.gif)
    
    Net sales (a) $XXXX Other income (a) XXX XXXX Costs and expenses: Cost of sales (a) $XXXX "Selling, general, and administrative expenses (a)" XXXX Interest expense (a) XXX Other deductions (a) XX Unusual items XXX Infrequently occurring items XXX XXXX Income (loss) from continuing operations before income taxes and other items listed below XXXX Provision for income taxes (benefit) (b) XXXX Income (loss) from continuing operations before other items listed below XXXX Discontinued operations: "Income (loss) from operations of discontinued Component X (less applicable income taxes of $XXXX)" XXXX XXXX Income (loss) before extraordinary items XXXX Extraordinary items (less applicable income taxes of $XXXX) XXXX Net income (loss) $XXXX (a) Components of ordinary income (loss). (b) "Consists of the total of income taxes (or benefit) applicable to ordinary income, unusual items, and infrequently occurring items."