1. The amount of net income to be reported each quarter by Solaris Corporation are determined as follows:
Solaris Corporation Income Statements by Quarters
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Sales $1,400,000 $1,680,000 $1,960,000 $2,240,000
Cost of goods sold 444,000 524,000 594,000 644,000
Gross profit $956,000 $1,156,000 $1,366,000 $1,596,000
Total Expenses:
Administrative costs 260,000 255,000 260,000 270,000
Insurance Expense 47,500 47,500 47,500 47,500
Advertising costs 35,000 35,000 35,000 35,000
Executive bonuses 21,000 21,000 21,000 21,000
Provision for bad debts 12,500 12,500 12,500 12,500
Annual maintenance costs 17,000 17,000 17,000 17,000
Total Expenses $393,000 $388,000 $393,000 $403,000
Income before taxes $563,000 $768,000 $973,000 $1,193,000
Taxes (25%) 140,750 $192,000 $243,250 $298,250
Net income $422,250 $576,000 $729,750 $894,750
2. Solaris Corporation will report the quarter net incomes, based on income tax rate of 22% from the third quarter, as follows:
Solaris Corporation Income Statements by Quarters
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Sales $1,400,000 $1,680,000 $1,960,000 $2,240,000
Cost of goods sold 444,000 524,000 594,000 644,000
Gross profit $956,000 $1,156,000 $1,366,000 $1,596,000
Total Expenses:
Administrative costs 260,000 255,000 260,000 270,000
Insurance Expense 47,500 47,500 47,500 47,500
Advertising costs 35,000 35,000 35,000 35,000
Executive bonuses 21,000 21,000 21,000 21,000
Provision for bad debts 12,500 12,500 12,500 12,500
Annual maintenance costs 17,000 17,000 17,000 17,000
Total Expenses $393,000 $388,000 $393,000 $403,000
Income before taxes $563,000 $768,000 $973,000 $1,193,000
Taxes (25%) (22%) 140,750 $192,000 $214,060 $262,460
Net income $422,250 $576,000 $758,940 $930,540
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