Question

Noventis Corporation prepared the following estimates for the four quarters of the current year: $ First Quarter 1,300,000 430,000 310,000 $ Second Quarter 1,560,000 510,000 185,000 100,000 $ Third Quarter 1,820,000 580,000 190,000 $ Fourth Quarter 2,080,000 630,000 200,000 Sales Cost of goods sold Administrative costs Advertising costs Executive bonuses Provision for bad debts Annual maintenance costs 76,000 64,000 72,000 Additional Information • First-quarter administrative costs include the $160,000 annual insurance premium. • 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. a. 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.

PLEASE SHOW WORK.  

Thank you.

Answer 1

a.

Particulars	Note	Q1	Q2	Q3	Q4
Sales		13,00,000	15,60,000	18,20,000	20,80,000
COGS		4,30,000	5,10,000	5,80,000	6,30,000
Administrative Costs	1	1,50,000	1,85,000	1,90,000	2,00,000
		40,000	40,000	40,000	40,000	1,60,000
Advertising Costs	2	25,000	25,000	25,000	25,000	1,00,000
Executive Bonuses	3	19,000	19,000	19,000	19,000	76,000
Provision for Bad Debts	4	16,000	16,000	16,000	16,000	64,000
Annual Maintenance Costs	5	18,000	18,000	18,000	18,000	72,000
Total Income		6,02,000	7,47,000	9,32,000	11,32,000
Tax@40%		2,40,800	2,98,800	3,72,800	4,52,800
Net Income		3,61,200	4,48,200	5,59,200	6,79,200
Note:
1. Administrative costs of first quarter include $160,000 annual insurance premium to be charged proportionately to Four quarters equally.
							2. Advertising costs $100,000 paid in the second quarter which will broadcast throughout the entire year to be proportionally charged to four quarters equally.
3. Executive Bonuses $76,000 paid in the forth quarter relate to the whole year and to be charged proportionally to four quarters equally.
							4. Provision for Bad debts $64,000 in the forth quarter relate to the whole year and to be charged proportionally to four quarters equally.
5. Annual maintenance costs $72,000 in the first quarter relate to the whole year and to be charged proportionally to four quarters equally.

b. By taking the figures in (a.) above

Particulars	Note	Q1	Q2	Q3	Q4
Sales		13,00,000	15,60,000	18,20,000	20,80,000
COGS		4,30,000	5,10,000	5,80,000	6,30,000
Administrative Costs		1,50,000	1,85,000	1,90,000	2,00,000
		40,000	40,000	40,000	40,000
Advertising Costs		25,000	25,000	25,000	25,000
Executive Bonuses		19,000	19,000	19,000	19,000
Provision for Bad Debts		16,000	16,000	16,000	16,000
Annual Maintenance Costs		18,000	18,000	18,000	18,000
Total Income		6,02,000	7,47,000	9,32,000	11,32,000
Tax@40%/38%	1	2,40,800	2,98,800	3,27,180	4,30,160
Net Income		3,61,200	4,48,200	6,04,820	7,01,840
Note
1. Estimated Annual effective income tax rate revised downward to 38% from 40%
						Particulars		Q3	Q4
Total Income(Accumulated)		22,81,000	34,13,000
Effective Tax@38% (A)		8,66,780	12,96,940
Tax recognized in earlier Periods (B)		5,39,600	8,66,780
Tax to be recognized (A-B)		3,27,180	4,30,160

Answer 2

536500, 676500, 851500, 1041500