XYz Company began operations in 2019 and entered into the following transactions

Question

XYz Company began operations in 2019 and entered into the following transactions during the year May 1 May 10: Pchased inventory costing $40,000 on account. June 1: Sold common stock to owners for $200,000 cash. Purchased equipment for $48,000 cash. The equipment was assigned a 10-year life and a $6,000 residual value August 1: Purchased a two-year insurance policy for $24,000 cash October 3 Sold one-half of the inventory that was purchased on May 10 to a customer for $49,000; the customer did not pay for the goods, but agreed to pay XYZ Company within ninety days November 9: Paid stockholders $10,000 cash as a dividend. December 17: Collected a $22,000 partial payment from the customer who purchased the inventory on October 3 December 31: Recorded adjusting entries related to the equipment and the prepaid insurance. Calculate the amount of net income that XYZ Company would report in its 2019 income statement after a11 the above transactions are recorded and necessary adjusting entries are made and posted

Explanation / Answer

Income statement: Sales revenue 49000 Less: Cost of goods sold (40000*1/2) 20000 Gross margin 29000 Less: Operating expenses Depreciation expenses (48000-6000)/10 *7/12 2450 Insurance expense (24000/24*5) 5000 Net income 21550

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