Answer (A) is correct . As calculated in previous questions, pro forma total sales equals $8,904,000, and pro forma cost of goods sold equals $5,022,280. Customer maintenance expense is projected to increase to $1,130,000 ($1,000,000 for the year ended 10/31/Year 1 + $130,000 wages and travel expenses increase for Year 2), and selling expenses are projected to increase to $850,000 ($600,000 for the year ended 10/31/Year 1 + $250,000 increase for Year 2). Administrative expense is unchanged at $900,000, but interest is projected to increase from $150,000 to $180,000 [$150,000 + ($250,000 × 12% inventory financing rate)]. Consequently, total pro forma expenses are $8,082,280 ($5,022,280 + $1,130,000 + $850,000 + $900,000 + $180,000). Pro forma pretax income is therefore $821,720 ($8,904,000 total net sales – $8,082,032 total expenses), and pro forma net income is $493,032 [$821,720 × (1.0 – .40 tax rate)].
Answer (B) is incorrect because Net income for the year ended October 31, Year 1, equals $330,000.
Answer (C) is incorrect because The amount of $328,688 equals pro forma income taxes.
Answer (D) is incorrect because Income taxes for the year ended October 31, Year 1, equals $220,000.
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In its pro forma income statement for the year ended October 31, Year 2, Easecom estimated that its net income will be
