Alpaca Corporation had revenues of $260,000 in its first year of operations. The company has not collected on $19,300 of its sales and still owes $26,300 on $90,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $13,000 in salaries. Owners invested $10,000 in the business and $10,000 was borrowed on a five-year note. The company paid $4,900 in interest that was the amount owed for the year, and paid $6,000 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.

$89,460

Explanation:

The computation of the net income is shown below:

Sales                                                  $260,000

Less: Cost of goods sold                -$90,000

Gross margin                                    $170,000

Less:

Salaries                                            -$13,000

Insurance payment                          -$3,000  ($6,000 ÷ 2 years)

Interest                                             -$4,900

profit before tax                               $149,100

Less: tax expense                           -$59,640

Net income                                      $89,460

We simply deducted all expenses from the revenues so that the net income could arrive and the same is to be considered

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