Reference no: EM132901203
Sakiwayo, the CFO of Homalco Ltd., is preparing the earnings projection for Quarter 1. The company has a December 31 year end. She has gathered the following information related to the assumptions for the first quarter projections:
Item Assumption
Sales $1,760,000
Cost of goods sold 40% of sales
Selling and administration - wages $230,000
Selling and administration - other expenses $185,000
- Interest expense 10% annual interest, payable quarterly. Interest is paid quarterly, calculated on the loan balance outstanding at the end of the previous quarter.
Annual depreciation expense 30% of opening capital asset balance and 15% of any purchases made during the year
New capital asset purchases $450,000
Dividends paid $360,000
Problem 1: The bank loan balance and capital asset balance as at December 31 were $600,000 and $500,000, respectively. The company has an income tax rate of 28%. Assuming that depreciation is equal to CCA, what is the pro forma net income for Quarter 1?
a) $152,370
b) $261,720
c) $411,570
d) $571,625
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