Challenge Reflaction

Task 3: Sophia is now familiar with the three cost flow assumptions, but she is unclear about the impact of these assumptions on HHEC.com’s net income. She therefore provides you with HHEC.com’s projected annual sales revenue, operating expenses, and an income tax rate, and asks you to use the information from Task 2 to calculate the company’s projected gross profit, income before income taxes, income tax expense, and net income.

Sales 172,185 Sales returns and allowances 6,140 Sales discounts 5,790 Sales salaries expense 6,030 Advertising expense 10,860 Office Salaries expense 21,020 Rent expense 8,100 Insurance expense 1,910 Net Income before Tax = Net Sales - Expenses Tax rate = 40%

Cost of goods sold Gross Profit = Net Sales - COGS LIFO 15,300 FIFO 11,700 Net Sales = Sales - Returns - Discounts Average Cost 13,520

Net Income = Income Before Tax - Tax

ANSWER LIFO FIFO Average Cost

Net Sales 160,255 160,255 160,255 Cost of Goods Sold (15,300) (11,700) (13,520) Projected Gross Profit 144,955 148,555 146,735 Sales salaries expense (6,030) (6,030) (6,030) Advertising expense (10,860) (10,860) (10,860) Office Salaries expense (21,020) (21,020) (21,020) Rent expense (8,100) (8,100) (8,100) Insurance expense (1,910) (1,910) (1,910) Income before Income Taxes 97,035 100,635 98,815 Income Tax Expense (38,814) (40,254) (39,526)

1

Net Income 58,221 60,381 59,289

2