Question

On January 1, Year 1, Jing Company purchased office equipment that cost $15,200 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $1,300. The equipment had a five-year useful life and a $5,700 expected salvage value. Assume that Jing Company earned $17,400 cash revenue and incurred $11,000 in cash expenses in Year 3. The company uses the straight-line method. The office equipment was sold on December 31, Year 3 for $8,900. What is the company's net income (loss) for Year 3?

a. $4,752 and $12,672
b. $2,200 and $12,760
c. $2,851 and $16,151
d. $0 and $13,300

Answer 1

$3,120

Step-by-step explanation:

First and foremost, annual depreciation expense is determined using the below straight-line method formula:

annual depreciation=total cost of equipment-salvage value/useful life

total cost of equipment=purchase price+ transportation cost

total cost of equipment=$15,200+$1,300

total cost of equipment=$16,500

salvage value=$5,700

useful life =5 years

annual depreciation=($16,500-$5,700)/5

annual depreciation=$2,160

net income=cash revenue-cash expenses-annual depreciation+profit/(loss) on disposal

profit or(loss)=sales proceeds-book value

book value=cost-accumulated depreciation for 3 years

book value=$16,500-($2160*3)=$10,020

profit/(loss) on disposal=$8,900-$10,020=-$1,120

net income= $17,400-$11,000-$2,160-$1,120

net income=$3,120