Noventis Corporation prepared the following estimates for the four quarters of the current year: First Quarter…
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Question “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 | $ | 1,575,000 | $ | 1,890,000 | $ | 2,205,000 | $ | 2,520,000 | ||||
Cost of goods sold | 458,000 | 538,000 | 608,000 | 658,000 | ||||||||
Administrative costs | 380,000 | 220,000 | 225,000 | 235,000 | ||||||||
Advertising costs | 0 | 120,000 | 0 | 0 | ||||||||
Executive bonuses | 0 | 0 | 0 | 104,000 | ||||||||
Provision for bad debts | 0 | 0 | 0 | 78,000 | ||||||||
Annual maintenance costs | 86,000 | 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.
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.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
a) | ||||
First | Second | Third | Fourth | |
Quarter | Quarter | Quarter | Quarter | |
Sales | 15,75,000 | 18,90,000 | 22,05,000 | 25,20,000 |
Selling price | 4,58,000 | 5,38,000 | 6,08,000 | 6,58,000 |
Gross profit | 11,17,000 | 13,52,000 | 15,97,000 | 18,62,000 |
Administrative costs | 2,90,000.00 | 2,50,000.00 | 2,55,000.00 | 2,65,000.00 |
Advertising costs | 30,000.00 | 30,000.00 | 30,000.00 | 30,000.00 |
Executive bonuses | 26,000.00 | 26,000.00 | 26,000.00 | 26,000.00 |
Provision for bad debts | 19,500.00 | 19,500.00 | 19,500.00 | 19,500.00 |
Annual maintenance costs | 21,500.00 | 21,500.00 | 21,500.00 | 21,500.00 |
Pretax Income | $ 7,30,000.00 | $ 10,05,000.00 | $ 12,45,000.00 | $ 15,00,000.00 |
Income Tax | $ 2,92,000.00 | $ 4,02,000.00 | $ 4,98,000.00 | $ 6,00,000.00 |
Net Income | $ 4,38,000.00 | $ 6,03,000.00 | $ 7,47,000.00 | $ 9,00,000.00 |
*Calculation quarter-end income tax | ||||
Pretax Income | $ 7,30,000.00 | $ 10,05,000.00 | $ 12,45,000.00 | $ 15,00,000.00 |
Cumulative Pretax Income | $ 7,30,000.00 | $ 17,35,000.00 | $ 29,80,000.00 | $ 44,80,000.00 |
Estimated Tax Rate | x 40 | x 40 | x 40 | x 40 |
Cumulative Income Tax to be Recognized to Date = Cumulative Pretax Income x 40% | $ 2,92,000.00 | $ 6,94,000.00 | $ 11,92,000.00 | $ 17,92,000.00 |
In an earlier period, less cumulative income tax was recognized | 0 | $ 2,92,000.00 | $ 6,94,000.00 | $ 11,92,000.00 |
This quarter, income tax | $ 2,92,000.00 | $ 4,02,000.00 | $ 4,98,000.00 | $ 6,00,000.00 |
b) | ||||
First | Second | Third | Fourth | |
Quarter | Quarter | Quarter | Quarter | |
Sales | 15,75,000 | 18,90,000 | 22,05,000 | 25,20,000 |
Selling price | 4,58,000 | 5,38,000 | 6,08,000 | 6,58,000 |
Gross profit | 11,17,000 | 13,52,000 | 15,97,000 | 18,62,000 |
Administrative costs | 2,90,000.00 | 2,50,000.00 | 2,55,000.00 | 2,65,000.00 |
Advertising costs | 30,000.00 | 30,000.00 | 30,000.00 | 30,000.00 |
Executive bonuses | 26,000.00 | 26,000.00 | 26,000.00 | 26,000.00 |
Provision for bad debts | 19,500.00 | 19,500.00 | 19,500.00 | 19,500.00 |
Annual maintenance costs | 21,500.00 | 21,500.00 | 21,500.00 | 21,500.00 |
Pretax Income | $ 7,30,000.00 | $ 10,05,000.00 | $ 12,45,000.00 | $ 15,00,000.00 |
Income Tax | $ 2,92,000.00 | $ 4,02,000.00 | $ 4,38,400.00 | $ 5,70,000.00 |
Net Income | $ 4,38,000.00 | $ 6,03,000.00 | $ 8,06,600.00 | $ 9,30,000.00 |
*Calculation quarter-end income tax | ||||
Pretax Income | $ 7,30,000.00 | $ 10,05,000.00 | $ 12,45,000.00 | $ 15,00,000.00 |
Cumulative Pretax Income | $ 7,30,000.00 | $ 17,35,000.00 | $ 29,80,000.00 | $ 44,80,000.00 |
Estimated Tax Rate | x 40 | x 40 | x 38% | x 38% |
Cumulative pretax income x tax rate = Cumulative cumulative income tax to be recognised to date | $ 2,92,000.00 | $ 6,94,000.00 | $ 11,32,400.00 | $ 17,02,400.00 |
In an earlier period, less cumulative income tax was recognized | 0 | $ 2,92,000.00 | $ 6,94,000.00 | $ 11,32,400.00 |
This quarter, income tax | $ 2,92,000.00 | $ 4,02,000.00 | $ 4,38,400.00 | $ 5,70,000.00 |
Conclusion
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