Noventis Corporation prepared the following estimates for the four quarters of t
ID: 2601531 • Letter: N
Question
Noventis Corporation prepared the following estimates for the four quarters of the current year:
Additional Information
First-quarter administrative costs include the $180,000 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.
FirstQuarter Second
Quarter Third
Quarter Fourth
Quarter Sales $ 1,275,000 $ 1,530,000 $ 1,785,000 $ 2,040,000 Cost of goods sold 434,000 514,000 584,000 634,000 Administrative costs 500,000 280,000 285,000 295,000 Advertising costs 0 140,000 0 0 Executive bonuses 0 0 0 104,000 Provision for bad debts 0 0 0 60,000 Annual maintenance costs 78,000 0 0 0
Explanation / Answer
1-
Second
Third
Fourth
First
Quarter
Quarter
Quarter
Quarter
Sales
$
1,275,000
$
1,530,000
$
1,785,000
$
2,040,000
Cost of goods sold
434,000
514,000
584,000
634,000
gross profit
841,000
1,016,000
1,201,000
1,406,000
Administrative costs
500000-180000
320,000
280,000
285,000
295,000
insurance expense
180000/4
45,000
45,000
45,000
45,000
Advertising costs
140000/4
35000
35000
35000
35000
Executive bonuses
0
0
0
104,000
Provision for bad debts
0
0
0
60,000
Annual maintenance costs
78000/4
19,500
19,500
19,500
19,500
pre tax income
421,500
636,500
816,500
847,500
less tax 40%
168600
254600
326600
339000
net income
252,900
381,900
489,900
508,500
Second
Third
Fourth
First
Quarter
Quarter
Quarter
Quarter
Sales
$
1,275,000
$
1,530,000
$
1,785,000
$
2,040,000
Cost of goods sold
434,000
514,000
584,000
634,000
gross profit
841,000
1,016,000
1,201,000
1,406,000
Administrative costs
500000-180000
320,000
280,000
285,000
295,000
insurance expense
180000/4
45,000
45,000
45,000
45,000
Advertising costs
140000/4
35000
35000
35000
35000
Executive bonuses
0
0
0
104,000
Provision for bad debts
0
0
0
60,000
Annual maintenance costs
78000/4
19,500
19,500
19,500
19,500
pre tax income
421,500
636,500
816,500
847,500
less tax 40% for 1 & 2 quarter and 38% for 3 & 4 quarter
168600
254600
310270
322050
net income
252,900
381,900
506,230
525,450
1-
Second
Third
Fourth
First
Quarter
Quarter
Quarter
Quarter
Sales
$
1,275,000
$
1,530,000
$
1,785,000
$
2,040,000
Cost of goods sold
434,000
514,000
584,000
634,000
gross profit
841,000
1,016,000
1,201,000
1,406,000
Administrative costs
500000-180000
320,000
280,000
285,000
295,000
insurance expense
180000/4
45,000
45,000
45,000
45,000
Advertising costs
140000/4
35000
35000
35000
35000
Executive bonuses
0
0
0
104,000
Provision for bad debts
0
0
0
60,000
Annual maintenance costs
78000/4
19,500
19,500
19,500
19,500
pre tax income
421,500
636,500
816,500
847,500
less tax 40%
168600
254600
326600
339000
net income
252,900
381,900
489,900
508,500
Second
Third
Fourth
First
Quarter
Quarter
Quarter
Quarter
Sales
$
1,275,000
$
1,530,000
$
1,785,000
$
2,040,000
Cost of goods sold
434,000
514,000
584,000
634,000
gross profit
841,000
1,016,000
1,201,000
1,406,000
Administrative costs
500000-180000
320,000
280,000
285,000
295,000
insurance expense
180000/4
45,000
45,000
45,000
45,000
Advertising costs
140000/4
35000
35000
35000
35000
Executive bonuses
0
0
0
104,000
Provision for bad debts
0
0
0
60,000
Annual maintenance costs
78000/4
19,500
19,500
19,500
19,500
pre tax income
421,500
636,500
816,500
847,500
less tax 40% for 1 & 2 quarter and 38% for 3 & 4 quarter
168600
254600
310270
322050
net income
252,900
381,900
506,230
525,450
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