Alpaca Corporation had revenues of $220,000 in its first year of operations. The company has not collected on $19,800 of its sales and still owes $27,000 on $90,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $10,500 in salaries. Owners invested $16,000 in the business and $16,000 was borrowed on a five-year note. The company paid $2,200 in interest that was the amount owed for the year, and paid $7,200 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.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Alpaca Corporation had revenues of $220,000 in its first year of operations. The company has not collected on $19,800 of its sales and still owes $27,000 on $90,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $10,500 in salaries. Owners invested $16,000 in the business and $16,000 was borrowed on a five-year note. The company paid $2,200 in interest that was the amount owed for the year, and paid $7,200 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.
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