Question

Alpaca Corporation had revenues of $260,000 in its first year of operations. The company has not collected on $19,500 of its sales and still owes $25,200 on $90,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $10,500 in salaries. Owners invested $23,000 in the business and $23,000 was borrowed on a five-year note. The company paid $3,000 in interest that was the amount owed for the year, and paid $6,500 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40%. Compute net income for the first year for Alpaca Corporation:

a) $70,200
b) $63,500
c) $60,500
d) $76,000

Answer 1

To calculate Alpaca Corporation's net income, revenue was adjusted for operating expenses and taxes. The calculations provided a figure that did not match the multiple-choice options given, suggesting that either the provided options were incorrect, additional data not included in the question, or an error in the calculations.

Step-by-step explanation:

To compute the net income for the first year for Alpaca Corporation, we need to consider their revenues, expenses, and taxes. Here are the details we know:

• Revenues: $260,000
• Uncollected Sales: $19,500 (this will reduce the actual cash revenue)
• Owed on purchases: $25,200 (remaining liability on inventory purchased)
• Salaries: $10,500
• Interest Expense: $3,000
• Insurance: $6,500, but this is a two-year policy, so we'll consider half for the first year: $3,250
• Tax Rate: 40%

First, let's calculate the gross profit:

• Total Revenue: $260,000

• Less: Cost of goods sold (COGS): $90,000 - $25,200 owed = $64,800
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Gross Profit = $260,000 - $64,800 = $195,200

Now, let's subtract the operating expenses:

• Salaries: $10,500
• Interest Expense: $3,000
• Insurance Expense: $3,250 (half of the two-year policy)

Operating Expenses = $10,500 + $3,000 + $3,250 = $16,750

Operating Income = Gross Profit - Operating Expenses = $195,200 - $16,750 = $178,450

Finally, calculate taxes owed and net income:

• Taxes Owed: $178,450 * 40% = $71,380
• Net Income = Operating Income - Taxes Owed = $178,450 - $71,380

Net Income = $107,070

Since the options provided don't include this number, there may be additional information or considerations missing from the problem or an error in the calculations. We have considered all the relevant data provided to reach this number. The options presented for the net income may be based on different interpretations of the accounting principles or have considered other data not disclosed in the question.