Question

XYZ Company began operations in May, 2022 by selling common stock to owners in exchange for $90,000 cash. During 2022, ABC Company entered into the following transactions:

1. On May 23, ABC Company purchased inventory for $50,000 cash.

2. On June 1, ABC Company purchased a three-year insurance policy for $32,400 cash.

3. On July 1, ABC Company received $49,000 cash from a customer for services to be performed over the next 8 months.

4. On August 1, ABC Company purchased equipment costing $60,000 by paying $20,000 in cash and agreeing to pay the remainder within six months. The equipment was given a 10-year life and a $4,200 residual value.

5. On August 18, ABC Company sold one-half of the inventory that was purchased on May 23 to a customer for $44,000 cash.

Calculate the amount of net income that ABC Company would report in its 2022 income statement after all the above transactions are recorded and all necessary adjusting entries are made and posted.

Answer 1

Income statement

Sales revenue		44000
Service revenue (49000/8*6)		36750
Total revenue		80750
Expense
Cost of goods sold (50000/2)	25000
Insurance expense (32400/36*7)	6300
Depreciation expense (60000-4200/10)*5/12	2325
Total expense		33625
Net income		47125