Question

Sheridan Company, a public camping ground near the Four Corners National Recreation Area, has compiled the following financial information as of December 31, 2020. Revenues during 2020-camping fees Revenues during 2020-general store Accounts payable Cash on hand Original cost of equipment Fair value of equipment $156,800 52,640 12,320 22,400 118,160 156,800 Notes payable Expenses during 2020 Supplies on hand Common stock Retained earnings $67,200 168,000 2,800 22,400 ? (a) Determine Sheridan Company's net income for 2020. Sheridan Company's net income $

Answer 1

Net income is the amount that is left after deducting all the expenses of current year from current year revenue.

Net income = campaign fee earned + revenue from general store - expenses.

Net income = 156,800 + 52,640 - 168,000

Net income = $ 41,440

SUMMARY:

All other items are balance sheet items. This net income is added with retained earnings in the equity section. The fair value of equipment doesn't affect income statement as the equipment is recorded at cost less depreciation on the balance sheet. If fair value method is adopted, then the resulting gain or loss in fair value is affected in income statement.