What is the solution to this problem? Noventis Corporation prepared the followin

Question

What is the solution to this problem?

Noventis Corporation prepared the following estimates for the four quarters of the current year:

•

Advertising costs paid in the second quarter relate to television advertisements that will be broadcast throughout the entire year.

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.

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    

Explanation / Answer

(a).

b.

Qrt 1 Qrt 2 Qrt 3 Qrt4 Sales 1150000 1380000 16100000 1840000 Less: Cost of goods sold 415000 495000 565000 615000 Less: Administrative cost 182500 202500 207500 217500 Less: Advertising cost 40000 40000 40000 40000 Less: Executive bonuses 64000 Less: Provision for bad debts 58000 Less: Maintenenace cost 66000 Income before tax 446500 642500 797500 845500 Less: Tax @ 40% 178600 257000 319000 338200 Income after tax 267900 385500 478500 507300

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