Question

Alpha Company provided the following data concerning its income statement: sales, $955,000; purchases, $407,000; beginning inventory, $215,000; ending inventory, $277,000; operating expenses, $108,000; freight-in, $5,000; sales discounts, $19,000; purchases discounts, $15,000; sales returns & allowances, $86,000; and purchases returns & allowances, $38,000. The data are complete and provide the basis for preparation of an income statement. How much is net income?

Answer 1

NET INCOME: $445,000

Explanation:

Inventory equation:

beginning inventory + purchase = COGS + ending inventory

base on your information we need to get the net purchases and COGS so:

purchases 407,000

freight-in 5,000

return and allowance -38,000

purchase discount -15,000

net purchases 359,000

Now we replace in the inventory equation with the know values

215,000 + 359,000 = COGS + 277,000

and we solve for COGS

COGS = 297,000

●Now we have to determinate the net sales:

sales 955,000

sales discount -19,000

return&llowances -86,000

net sales 850,000

●Finally we proceed with the net income statment

net sales     850,000

COGS -297,000

Gross Profit   553,000

operating expenses -108,000

●Net Income    445,000