Question

Berkshire Inc. had revenues of $379,000 in its first year of operations. The company has not collected on $46,700 of its sales and still owes $39,100 on $190,000 of merchandise it purchased. There was no inventory on hand at the end of the year. The company paid $28,300 in salaries. The owners invested $40,000 in the business and $30,000 was borrowed on a five-year note. The company paid $2,700 in interest that was the amount owed for the year and paid $9,000 for a two-year insurance policy on the first day of business.

Ignore the income tax effect, the net income for the first year for Berkshire is:

Multiple Choice

• $189,000

• $229,000

• $153,500

• $160,700

Answer 1

Revenue earned = $379,000

Salaries expense = $28,300

Interest expense = $2,700

Insurance expense for 2 years = $9,000

Insurance expense for 1 year = 9,000 x 1/2

= $4,500

Cost of inventory sold = $190,000

Income statement
Revenues earned		379,000
Less: expenses
Salaries expense	28,300
Interest expense	2,700
Insurance expense	4,500
Cost of inventory sold	190,000
Total expenses		-225,500
Net income		$153,500

The net income for the first year for Berkshire is $153,000

Third option is correct.