Question

Shortt & Tall, Attorneys at Law, opened their firm with $30,000 cash from investors and a $20,000 loan. During the first year of operations, the firm earned $4,000 of revenue and incurred $1,000 in operating expenses. Shortt & Tall repaid $12,000 in principal and paid 10% interest on the balance outstanding at the end of the year.

What is Shortt & Tall's Net Income for the first year?

Answer 1

To find Shortt & Tall's first-year Net Income, calculate revenue minus operating and interest expenses, resulting in a Net Income of $2,200.

Step-by-step explanation:

To calculate Shortt & Tall's Net Income for the first year, we need to account for revenues, operating expenses, and interest expenses.

Revenues: The firm earned $4,000.

Operating expenses: The firm incurred $1,000 in operating expenses.

Interest expenses: The $20,000 loan would incur 10% interest which amounts to $2,000. However, since they repaid $12,000, the interest would be calculated on the remaining balance of $8,000, resulting in $800 in interest expenses.

Net income calculation: Revenue - Operating expenses - Interest expenses = Net Income.

$4,000 - $1,000 - $800 = $2,200.

The Net Income for Shortt & Tall's first year is $2,200.