Question

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

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Sales	$	1,150,000		$	1,380,000		$	1,610,000		$	1,840,000
Cost of goods sold		415,000			495,000			565,000			615,000
Administrative costs		280,000			170,000			175,000			185,000
Advertising costs		0			160,000			0			0
Executive bonuses		0			0			0			64,000
Provision for bad debts		0			0			0			58,000
Annual maintenance costs		66,000			0			0			0

Additional Information

• First-quarter administrative costs include the $130,000 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.

Answer 1