Question

Alpaca Corporation had revenues of $270,000 in its first year of operations. The company has not collected on $18,700 of its sales and still owes $25,600 on $75,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $14,000 in salaries. Owners invested $18,000 in the business and $18,000 was borrowed on a five-year note. The company paid $3,800 in interest that was the amount owed for the year, and paid $7,600 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.

Multiple Choice

• $121,380

• $132,720

• $173,400

• $195,000

Answer 1

Revenues		$270,000
Expenses:
Cost of goods sold	$75,000
Salaries	$14,000
Interest	$3,800
Insurance	$3,800	$96,600
Income before tax		$173,400
Income tax at 30%		$52,020
Net income		$121,380

option A