Question

Alpaca Corporation had revenues of $260,000 in its first year of operations. The company has not collected on $19,300 of its sales and still owes $26,300 on $90,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $13,000 in salaries. Owners invested $10,000 in the business and $10,000 was borrowed on a five-year note. The company paid $4,900 in interest that was the amount owed for the year, and paid $6,000 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.

Answer 1

$89,460

Step-by-step explanation:

The computation of the net income is shown below:

Sales $260,000

Less: Cost of goods sold -$90,000

Gross margin $170,000

Less:

Salaries -$13,000

Insurance payment -$3,000 ($6,000 ÷ 2 years)

Interest -$4,900

profit before tax $149,100

Less: tax expense -$59,640

Net income $89,460

We simply deducted all expenses from the revenues so that the net income could arrive and the same is to be considered