Question

A company has the following budget information: Sales: $118,800; COGS: $48,500; Depreciation expense: $1,500; Interest expense: $250; Other expenses: $41,880. If the company budgets 40% for income tax expense, the amount of budgeted income tax expense will be $

Answer 1

Answer:

The amount of budgeted income tax expense will be $10,668

Explanation:

First determine the Earnings before tax then apply the Budgeted Tax expense rate on the Earnings before tax to establish the budgeted Income tax expense.

Sales                                                                    $118,800

Less Cost of Goods Sold                                   ($48,500)

Gross Profit                                                          $70,300

Less Expenses

Depreciation expense                                          ($1,500)

Interest expense                                                     ($250)

Other expenses                                                   ($41,880)

Earnings Before Tax                                            $26,670

Budgeted Tax Expense ( $26,670 × 40%)         ($10,668)

Earnings after interest and tax                             $16,002

Answer 2

Answer:

$10,688

Explanation:

This can be estimated by preparing the Budgeted Trading, Profit and Loss accounts.

Budgeted Trading, Profit and Loss Accounts

Details                                                              $                        $

Sales                                                                                   118,800  

Cost of goods sold (COGS)                                             (48,500)  

Gross profit                                                                         70,300

Expenses:

Depreciation expense                                (1,500)

Interest expense                                           (250)  

Other expenses                                         (41,880)  

Totals expenses                                                                   (43,630)  

Profit before tax                                                                    26,670

Income tax expense (26,670 × 40%)                               (10,688)  

Profit after tax                                                                        16,002

Therefore, the amount of budgeted income tax expense will be $10,688.