Noventis Corporation prepared the following estimates for the four quarters of t

Question

Noventis Corporation prepared the following estimates for the four quarters of the current year First Quarter $ 1,325,000 Third Quarter 1,590,000 1,855,000 2,120,000 Second Quarter Fourth Quarter Sales Cost of goods sold Administrative costs Advertising costs Executive bonuses Provision for bad debts Annual maintenance costs 438,000 480,000 518,000 270,000 200,000 588,000 275,000 638,000 285,00 96,000 56,000 74,000 Additional Information First-quarter administrative costs include the $160,000 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. Net Income a. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter b. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Explanation / Answer

Part (a) First Quarter Second quarter Third Quarter Fourth Quarter Sales              [A] $           1,325,000 $           1,590,000 $              1,855,000 $           2,120,000 Less: Cost of goods Sold              [B] $               438,000 $               518,000 $                  588,000 $              638,000 Administrative Cost $               480,000 $               270,000 $                  275,000 $              285,000 Less: Insurance Premium $             (160,000) $                           -   $                             -   $                          -   Net Administrative Cost                [C] $               320,000 $               270,000 $                  275,000 $              285,000 Annual Insurance Premium         [D] $                 40,000 $                 40,000 $                    40,000 $                 40,000 Advertising Cost after adjustment    [E] $                 50,000 $                 50,000 $                    50,000 $                 50,000 Executive Bonus                        [F] $                           -   $                           -   $                             -   $                 96,000 Provision for Bad Debts          [G] $                           -   $                           -   $                             -   $                 56,000 Annul Maintenance cost after adjustment [H] $                 18,500 $                 18,500 $                    18,500 $                 18,500 Income $               458,500 $               693,500 $                  883,500 $              936,500 Less- Tax @ 40% $               183,400 $               277,400 $                  353,400 $              374,600 Net Income $               275,100 $               416,100 $                  530,100 $              561,900 Part (b) First Quarter Second quarter Third Quarter Fourth Quarter Sales              [A] $           1,325,000 $           1,590,000 $              1,855,000 $           2,120,000 Less: Cost of goods Sold              [B] $               438,000 $               518,000 $                  588,000 $              638,000 Administrative Cost $               480,000 $               270,000 $                  275,000 $              285,000 Less: Insurance Premium $             (160,000) $                           -   $                             -   $                          -   Net Administrative Cost                [C] $               320,000 $               270,000 $                  275,000 $              285,000 Annual Insurance Premium         [D] $                 40,000 $                 40,000 $                    40,000 $                 40,000 Advertising Cost after adjustment    [E] $                 50,000 $                 50,000 $                    50,000 $                 50,000 Executive Bonus                        [F] $                           -   $                           -   $                             -   $                 96,000 Provision for Bad Debts          [G] $                           -   $                           -   $                             -   $                 56,000 Annul Maintenance cost after adjustment [H] $                 18,500 $                 18,500 $                    18,500 $                 18,500 Income $               458,500 $               693,500 $                  883,500 $              936,500 Effective Tax Rate $                            0 $                            0 $                               0 $                           0 Less: Tax $               183,400 $               277,400 $                  335,730 $              355,870 Net Income $               275,100 $               416,100 $                  547,770 $              580,630

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