A company has the following budget information: Sales: $118,800; COGS: $48,500; Depreciation expense: $1,500; Interest expense: $250; Other

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 $

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  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

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  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.

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