Noventis Corporation prepared the following estimates for the four quarters of t
ID: 341681 • 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 $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.
FirstQuarter 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
Explanation / Answer
Answer
Administrative cost Qtr 1 = 280000-130000 = 150000
Insurance premium of 130000 is annual hence allocated equally to all 4 quarters as $32500.
Advertising cost and maintenance cost are also allocated equally to all 4 quarters considering them as ANNUAL cost
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total Year
Sales
$ 1150000.00
$ 1380000.00
$ 1610000.00
$ 1840000.00
$ 5980000.00
(-) Cost of Goods Sold
$ 415000.00
$ 495000.00
$ 565000.00
$ 615000.00
$ 2090000.00
Gross Profit
$ 735000.00
$ 885000.00
$ 1045000.00
$ 1225000.00
$ 3890000.00
Expenses:
Administrative cost
$ 150000.00
$ 170000.00
$ 175000.00
$ 185000.00
$ 680000.00
Insurance premium
$ 32500.00
$ 32500.00
$ 32500.00
$ 32500.00
$ 130000.00
Advertising cost
$ 40000.00
$ 40000.00
$ 40000.00
$ 40000.00
$ 160000.00
Bonuses
$ 64000.00
$ 64000.00
Provision for bad debts
$ 58000.00
$ 58000.00
Annual maintenance costs
$ 16500.00
$ 16500.00
$ 16500.00
$ 16500.00
$ 66000.00
Total expenses
$ 239000.00
$ 259000.00
$ 264000.00
$ 396000.00
$ 1158000.00
Net Income before taxes
$ 496000.00
$ 626000.00
$ 781000.00
$ 829000.00
$ 2732000.00
Income tax 40%
$ 198400.00
$ 250400.00
$ 312400.00
$ 331600.00
$ 1092800.00
Net Income after tax
$ 297600.00
$ 375600.00
$ 468600.00
$ 497400.00
$ 1639200.00
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total Year
Sales
$ 1150000.00
$ 1380000.00
$ 1610000.00
$ 1840000.00
$ 5980000.00
(-) Cost of Goods Sold
$ 415000.00
$ 495000.00
$ 565000.00
$ 615000.00
$ 2090000.00
Gross Profit
$ 735000.00
$ 885000.00
$ 1045000.00
$ 1225000.00
$ 3890000.00
Expenses:
Administrative cost
$ 150000.00
$ 170000.00
$ 175000.00
$ 185000.00
$ 680000.00
Insurance premium
$ 32500.00
$ 32500.00
$ 32500.00
$ 32500.00
$ 130000.00
Advertising cost
$ 40000.00
$ 40000.00
$ 40000.00
$ 40000.00
$ 160000.00
Bonuses
$ 64000.00
$ 64000.00
Provision for bad debts
$ 58000.00
$ 58000.00
Annual maintenance costs
$ 16500.00
$ 16500.00
$ 16500.00
$ 16500.00
$ 66000.00
Total expenses
$ 239000.00
$ 259000.00
$ 264000.00
$ 396000.00
$ 1158000.00
Net Income before taxes
$ 496000.00
$ 626000.00
$ 781000.00
$ 829000.00
$ 2732000.00
Income tax
$ 198400.00
$ 250400.00
$ 296780.00
$ 315020.00
$ 1060600.00
Net Income after tax
$ 297600.00
$ 375600.00
$ 484220.00
$ 513980.00
$ 1671400.00
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total Year
Sales
$ 1150000.00
$ 1380000.00
$ 1610000.00
$ 1840000.00
$ 5980000.00
(-) Cost of Goods Sold
$ 415000.00
$ 495000.00
$ 565000.00
$ 615000.00
$ 2090000.00
Gross Profit
$ 735000.00
$ 885000.00
$ 1045000.00
$ 1225000.00
$ 3890000.00
Expenses:
Administrative cost
$ 150000.00
$ 170000.00
$ 175000.00
$ 185000.00
$ 680000.00
Insurance premium
$ 32500.00
$ 32500.00
$ 32500.00
$ 32500.00
$ 130000.00
Advertising cost
$ 40000.00
$ 40000.00
$ 40000.00
$ 40000.00
$ 160000.00
Bonuses
$ 64000.00
$ 64000.00
Provision for bad debts
$ 58000.00
$ 58000.00
Annual maintenance costs
$ 16500.00
$ 16500.00
$ 16500.00
$ 16500.00
$ 66000.00
Total expenses
$ 239000.00
$ 259000.00
$ 264000.00
$ 396000.00
$ 1158000.00
Net Income before taxes
$ 496000.00
$ 626000.00
$ 781000.00
$ 829000.00
$ 2732000.00
Income tax 40%
$ 198400.00
$ 250400.00
$ 312400.00
$ 331600.00
$ 1092800.00
Net Income after tax
$ 297600.00
$ 375600.00
$ 468600.00
$ 497400.00
$ 1639200.00
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