Question

Fortune, Inc., is preparing its master budget for the first quarter. The company sells a single product at a price of $25 per unit. Sales (in units) are forecasted at 42,000 for January, 62,000 for February, and 52,000 for March. Cost of goods sold is $12 per unit. Other expense information for the first quarter follows.Commissions 11 % of salesRent $ 18,000 per monthAdvertising 12 % of salesOffice salaries $ 78,000 per monthDepreciation $ 47,000 per monthInterest 11 % annually on a $260,000 note payableTax rate 30 %I need the commisions exspense, advertising exspense, interrest expense and Income Tax expense #sWould be nice to get how they were calculated as wellFORTUNE, INC.Budgeted Income StatementFor Quarter Ended March 31Sales $3,900,000Cost of goods sold 1,872,000Gross profit 2,028,000Operating expensesCommissions expenseRent expense 54,000Advertising expenseOffice salaries expense 234,000Depreciation expense 141,000Interest expenseTotal operating expenses 429,000Income before taxes 1,599,000Income tax expenseNet income $1,599,000

Answer 1

Answer and Explanation:

The preparation of the income statement is presented below:

Sales $3,900,000

Less: Cost of goods sold $1,872,000

Gross profit $2,028,000

Less: Operating expenses

Commissions expense $429,000

Rent expense $54,000

Advertising expense $468,000

Office salaries expense $234,000

Depreciation expense $141,000

Interest expense $7,150

Total operating expenses -$1,333,150

Income before taxes $694,850

Less: Income tax expense $208,455

Net income $486,395

Working notes:

1. Commissions expense is  11 % of sales

= 11% × $3,900,000

= $429,000

2. Advertising expense is  12 % of sales

= 12% × $3,900,000

= $468,000

Interest expense is 11 % annually on a $260,000

= 11% × 260000 × 3 months  ÷ 12 months

= $7,150  

Income tax expenses =is

= 30% × $694,850

= $208,455

As we know that the income statement records the expenses and the revenues and the same is shown to determine the net income or net loss for the given period