Problem

Noventis Corporation prepared the following estimates for the four quarters of the current...

Noventis Corporation prepared the following estimates for the four quarters of the current year:

 

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Sales

$1,000,000

$1,200,000

$1,400,000

$1,600,000

Cost of goods sold

400,000

480,000

550,000

600,000

Administrative costs

250,000

155,000

160,000

170,000

Advertising costs

-0-

100,000

-0-

-0-

Executive bonuses

-0-

-0-

-0-

80,000

Provision for bad debts

-0-

-0-

-0-

52,000

Annual maintenance costs

60,000

-0-

-0-

-0-

Additional Information

•      First-quarter administrative costs include the $100,000 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 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 income to be reported each quarter of the current year.

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