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Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in accounts payable for the inventory purchased in Event 1. (4) Sold inventory purchased in Event 1 for $5,000 to customers on account. At the end of the first accounting period what would be reported on the Income Statement for net income?

Respuesta :

jepessoa

Answer:

The answer is: $1,000

Explanation:

We are given the following events for Amarillo Company:

  • Purchased $5,000 inventory
  • Returned $1,000 inventory
  • Paid $4,000 inventory
  • Sold inventory at $5,000

We can elaborate a simple income statement:

Sales                                    $5,000

Cost of goods sold             $4,000    

Gross profit                         $1,000

Since we don't know any other expenses, we can assume the gross profit equals net income.

dubeyshailja64

The net income to be reported in the Income Statement will be $1,000.

What is net income?

Net income or net profit is the income earned by the business after paying for all the direct and indirect expenses. The net income forms a part of the capital and is added to the same.

The net income of Amarillo Company will be calculated as follows:

The total sales are $5,000

The cost of goods sold is to be calculated as follows:

[tex]\rm Cost\:of\:goods\:sold = Purchases - Return\\\\\rm Cost\:of\:goods\:sold = \$5,000-\$1,000\\\\\rm Cost\:of\:goods\:sold = \$4,000[/tex]

Since there are no indirect expenses, the value of gross profit will be the value of net income.

Therefore the net income is:

[tex]\rm Net \:Income = Sales - Cost\:of\:goods\:sold\\\\\rm Net \:Income = \$5,000 -\$4,000\\\\\rm Net \:Income =\$1,000[/tex]

Therefore the net income is $1,000.

Learn more about net income here:

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