Question

Alpaca Corporation had revenues of $290,000 in its first year of operations. The company has not collected on $18,600 of its sales and still owes $26,400 on $100,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $12,000 in salaries. Owners invested $24,000 in the business and $24,000 was borrowed on a five-year note. The company paid $4,600 in interest that was the amount owed for the year, and paid $7,200 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 30%. Compute net income for the first year for Alpaca Corporation.

Answer 1

Answer:

$118,860

Explanation:

Gross Margin:

= Revenue - Cost of Goods Sold

= $290,000 - $100,000

= $190,000

Profit before tax:

= Gross Margin - Salaries - Insurance payment - Interest

= $190,000 - $12,000 - $3,600 - $4,600

= $169,800

Insurance payment: Only half of 2-year payment of 7,200 is relevant for this year.

Net Income:

= Profit before tax - Tax at 30%

= $169,800 - (30% × $169,800)

= $169,800 - $50,940

= $118,860