Question

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

First Quarter Second Quarter Third Quarter Fourth Quarter

Sales $ 1,100,000 $ 1,320,000 $ 1,540,000 $ 1,760,000

Cost of goods sold 410,000 490,000 560,000 610,000

Administrative costs 270,000 165,000 170,000 180,000

Advertising costs 0 140,000 0 0

Executive bonuses 0 0 0 60,000

Provision for bad debts 0 0 0 56,000

Annual maintenance costs 64,000 0 0 0

Additional Information • First-quarter administrative costs include the $120,000 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.

Answer 1

Net Income for each Quarter
Particulars	Firsh Quarter	Second Quarter	Third Quarter	Forth Quarter
Sales	1100000	1320000	1540000	1760000
Less Expenses
Cost of Goods Sold	410000	490000	560000	610000
Administratice Cost	150000	165000	170000	180000
Annual Insurance	30000	30000	30000	30000
Advertising Cost	35000	35000	35000	35000
Executive Bonous	15000	15000	15000	15000
Provision for Bad Debts	14000	14000	14000	14000
Annual Maintanance Cost	16000	16000	16000	16000
Profit Before Tax	430000	555000	700000	860000
Less Tax @ 40%	172000	222000	280000	344000
Net Income	258000	333000	420000	516000
Notes
1. Annual Insurance Cost of $120000 is deducted from the Administrative Cost of First Quarter and spread all over the year.
2. It is assumed that advertisement cost is wholly for current year.
3. Executive Bonous, Provision of Bad Debts and Annual maintanance Cost are kind of Expenses which incurred at the end of the but the services for the same is enjoyed all over the year so the said expenses has been charged all over the year.