Question

Noventis Corporation prepared the following estimates for the four quarters of the current year: $ First Quarter 1,525, 000 454.209 4ee, 800 $ $ Third Quarter 2,135,000 684,800 235,899 $ Second Quarter 1,830,000 534,00 230,899 160, eee Fourth Quarter 2,440,000 654.209 245,899 Sales Cost of goods sold Administrative costs Advertising costs Executive bonuses Provision for bad debts Annual maintenance costs 64.ee 82,800 90,000 Additional Information • First-quarter administrative costs include the $140.000 annual insurance premium. 1. Advertising costs paid in the second quarter relate to television advertisements that will be broadcast throughout the entire year. . No special items affect income during the year. . Noventis estimates an effective income tax rate for the year of 40 percent. . Assuming that actual results do not vary from the estimates provided, determine the amount of net income to be reported each quarter of the current year. b. Assume that actual results do not vary from the estimates provided except for that in the third quarter, the estimated annual effective income tax rate is revised downward to 38 percent. Determine the amount of net income to be reported each quarter of the current year. Net Income 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Answer 1

1st Qtr 1,525,000 2nd Qtr 1,830,000 3rd Qtr 2,135,000 4th Qtr 2,440,000 454,000 400,000 534,000 230,000 160,000 604,000 235,000 654,000 245,000 a) Determination of Net Income with tax rate 40% :- Particulars Sales Less: Expenses Cost of goods sold Administrative costs Advertising costs Executive bonuses Provision for bad debts Annual maintenance costs Total Expenses Pre tax income Less: Income Tax 40% Net Income 64,000 82,000 90,000 944,000 581,000 232,400 348,600 924,000 906,000 362,400 543,600 839,000 1,296,000 518,400 777,600 1,045,000 1,395,000 558,000 837,000 2nd Qtr 1,830,000 3rd Qtr 2,135,000 4th Qtr 2,440,000 534,000 230,000 160,000 604,000 235,000 654,000 245,000 b) Determination of Net Income with tax rate 38% :- Particulars 1st Qtr Sales 1,525,000 Less: Expenses Cost of goods sold 454,000 Administrative costs 400,000 Advertising costs Executive bonuses Provision for bad debts Annual maintenance costs 90,000 Total Expenses 944,000 Pre tax income 581,000 Less: Income Tax c38% 220,780 Net Income 360,220 64,000 82,000 924,000 906,000 344,280 561,720 839,000 1,296,000 492,480 803,520 1,045,000 1,395,000 530,100 864,900