Problem 21-6A (Part Level Submission) Krause Industries' balance sheet at December 31, 2016, is presented below. KRAUSE
Question:
Problem 21-6A (Part Level Submission)
Krause Industries' balance sheet at December 31, 2016, is presented below.
KRAUSE INDUSTRIES
Balance Sheet
December 31, 2016
Assets
Current Assets
Cash $7,500
Accounts receivable 73,500
Finished goods inventory (1,500 units) 26,190
Total current assets 107,190
Property, Plant, and Equipment
Equipment $40,580
Less: Accumulated depreciation 10,980$29,600
Total assets$136,790
Liabilities and Stockholders' Equity
Liabilities
Notes payable $26,260
Accounts payable 46,550
Total liabilities 72,810
Stockholders' Equity
Common stock $38,510
Retained earnings 25,470
Total stockholders' equity 63,980
Total liabilities and stockholders' equity $136,790
Budgeted data for the year 2017 include the following.
2017
Quarter 4Total
Sales budget (8,000 units at $32)$76,800 $256,000
Direct materials used14,08062,500
Direct labor12,50050,900
Manufacturing overhead applied10,00049,170
Selling and administrative expenses15,32075,000
To meet sales requirements and to have 2,500 units of finished goods on hand at December 31, 2017, the production budget shows 9,000 required units of output. The total unit cost of production is expected to be $18. Krause uses the first-in, first-out (FIFO) inventory costing method. Interest expense is expected to be $3,500 for the year. Income taxes are expected to be 40% of income before income taxes. In 2017, the company expects to declare and pay an $8,620 cash dividend.
The company's cash budget shows an expected cash balance of $5,880 at December 31, 2017. All sales and purchases are on account. It is expected that 60% of quarterly sales are collected in cash within the quarter and the remainder is collected in the following quarter. Direct materials purchased from suppliers are paid 50% in the quarter incurred and the remainder in the following quarter. Purchases in the fourth quarter were the same as the materials used. In 2017, the company expects to purchase additional equipment costing $10,290. $4,816 of depreciation expense on equipment is included in the budget data and split equally between manufacturing overhead and selling and administrative expenses. Krause expects to pay $8,260 on the outstanding notes payable balance plus all interest due and payable to December 31 (included in interest expense $3,500, above). Accounts payable at December 31, 2017, includes amounts due suppliers (see above) plus other accounts payable of $8,260. Unpaid income taxes at December 31 will be $7,770.
How do you calculate the income tax expense?
How do you calculate the Net Income/ (Loss)?