Alpaca Corporation had revenues of $240,000 in its first year of operations. The

Question

Alpaca Corporation had revenues of $240,000 in its first year of operations. They have not collected on $19,700 of their sales, and still owe $25,600 on $90,000 of merchandise they purchased. The company had no inventory on hand at the end of the year. The company paid $11,000 in salaries. Owners invested $23,000 in the business and $23,000 was borrowed on a five-year note. The company paid $4,500 in interest that was the amount owed for the year, and paid $6,400 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40%.
Compute earnings after interest and taxes.

Explanation / Answer

Revenues $240,000 Purchases $90,000 Less: Ending inv 0 $90,000 So Cost of Goods Sold $90,000 Gross profit = (Rev-COGS) = (240000-90000) = 150,000 Expenses: Salaries expense 11,000 Interest expense 4,500 Insurance expense 3,200 18,700 So Income before tax = GRoss Profit-Exp) = 150000-18700 = 131,300 Less Income tax at 40% $52,520 So Net Income ie Earning Ater Int & Tax = 131300-52520 = $78,780

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