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