Question :
Taxes are 35 percent of pretax income and are paid in the quarter incurred. 50 percent of sales are collected in the quarter of sale and 50 percent are collected in the next quarter. 70 percent of purchases are paid in the quarter of buy and 30 percent are paid in the next quarter. Administrative and Selling expenses are paid in the quarter incurred except for $7,000 of depreciation added in the administrative and selling expense. A capital expenditure for $20,000 is planned for the fourth quarter of 2015.
Q1 Q2 Q3 Q4
Sales 400,000 475,000 550,000 600,000
Cost of sales 170,000 185,000 220,000 230,000
Purchases 160,000 200,000 225,000 267,000
Selling and admin expense 67,000 69,000 71,000 73,000
Sales 550,000
Less cost of sales 250,000
Gross margin 300,000
Selling and admin expense 70,000
Income before taxes 230,000
Income taxes 80,500
Net income 149,500