Question

In: Accounting

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

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

First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Sales $ 1,500,000 $ 1,800,000 $ 2,100,000 $ 2,400,000
Cost of goods sold 450,000 530,000 600,000 650,000
Administrative costs 350,000 205,000 210,000 220,000
Advertising costs 0 180,000 0 0
Executive bonuses 0 0 0 92,000
Provision for bad debts 0 0 0 72,000
Annual maintenance costs 80,000 0 0 0

Additional Information

First-quarter administrative costs include the $200,000 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.

Net Income
a. 1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
b. 1st Quarter
2nd Quarter
3rd Quarter
4th Quarter

Solutions

Expert Solution

a) Second Third Fourth
First Quarter Quarter Quarter
Quarter
Sales $ 15,00,000 18,00,000 21,00,000 24,00,000
Cost of goods sold 4,50,000 5,30,000 6,00,000 6,50,000
Administrative costs 2,00,000 2,55,000 2,60,000 2,70,000
Advertising costs 0 60,000 60000 60000
Net operating income 8,50,000 9,55,000 11,80,000 14,20,000
Income tax at 40% 340000 382000 472000 568000
Net income 5,10,000 5,73,000 7,08,000 8,52,000
b) Second Third Fourth
First Quarter Quarter Quarter
Quarter
Sales $ 15,00,000 18,00,000 21,00,000 24,00,000
Cost of goods sold 4,50,000 5,30,000 6,00,000 6,50,000
Administrative costs 2,00,000 2,55,000 2,60,000 2,70,000
Advertising costs 0 60,000 60000 60000
Net operating income 8,50,000 9,55,000 11,80,000 14,20,000
Income tax at 40%/38% 340000 382000 412300 539600
Net income 5,10,000 5,73,000 7,67,700 8,80,400
NOTE:
Total tax due for the first three quarters = (850000+955000+1180000)*38% = 1134300
Tax accounted during the first 2 quarters = 722000
Tax to be accounted during the thiird quarter 412300

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