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

$10,688

Step-by-step 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.

Answer 2

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

Step-by-step 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