The Ryan Corporation is planning on expanding sales next year by selling on cred

Question

The Ryan Corporation is planning on expanding sales next year by selling on credit. It predicts its cash sales will be $800,000 and its credit sales will be $200,000. The cost of goods sold is expected to be 40% of sales. Salaries and wages expense, insurance expense, rent expense, and supplies expense are expected to total 30% of sales. Five percent of credit sales are expected to be uncollectible. Income taxes expense is expected to be 35% of income before taxes. Determine the company's expected net income for next year.

a. $195,000 b. $87,500 c. $188,500 d. $169,000

Explanation / Answer

Answer is C

Particulars Amt Cash Sales 800000 Credit Sales 200000 Total Sales 1000000 Less: Cost of Goods sold at 40% 400000 Less: Admin Cost at 30% 300000 Less: Bad debt (200000 x 5%) 10000 EBIT 290000 Less: Taxes at 35% 101500 EAT 188500

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