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 $ 1,150,000 $ 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.

Solutions

Expert Solution

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.

First

Second

Third

Fourth

Quarter

Quarter

Quarter

Quarter

Sales

1150000

1380000

1610000

1840000

Less:

Cost of goods sold

415000

495000

565000

615000

Administrative costs

182500

202500

207500

217500

Advertising costs

40,000

40,000

40,000

40,000

Executive bonuses

16000

16000

16000

16000

Provision for bad debts

14500

14500

14500

14500

Annual maintenance costs

16500

16500

16500

16500

Pre-tax income

465,500

595,500

750,500

920,500

Less: tax at 40%

186200

238200

300200

368200

Net income

279,300

357,300

450,300

552,300

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.

First

Second

Third

Fourth

Quarter

Quarter

Quarter

Quarter

Sales

1150000

1380000

1610000

1840000

Less:

Cost of goods sold

415000

495000

565000

615000

Administrative costs

182500

202500

207500

217500

Advertising costs

40,000

40,000

40,000

40,000

Executive bonuses

16000

16000

16000

16000

Provision for bad debts

14500

14500

14500

14500

Annual maintenance costs

16500

16500

16500

16500

Pre-tax income

465,500

595,500

750,500

920,500

Less: tax at

186200

238200

285190

349790

Net income

279,300

357,300

465,310

570,710

Working notes for the above answer:

W.N: a)

W.N: b)


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