Alpaca Corporation had revenues of $290,000 in its first year of operations. The

Question

Alpaca Corporation had revenues of $290,000 in its first year of operations. The company has not collected on $19,500 of its sales and still owes $25,700 on $85,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $10,000 in salaries. Owners invested $30,000 in the business and $30,000 was borrowed on a five-year note. The company paid $3,400 in interest that was the amount owed for the year, and paid $6,500 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.

Explanation / Answer

Particulars Amount $ Total Revenue       290,000 Less : Purchase of Merchandise          85,000 Salaries paid          10,000 Interest paid            3,400 Insurance for the Year ($6500/2)            3,250 Net Income before tax       188,350 Tax expenses @ 40%          75,340 Net Income       113,010

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