Question

3 — Case Study: Income Statement Calculate the net profit or loss for a hypothetical business.

Peter is head of accounting at the paper company that he works at and recorded the following statements:

Service Revenue: $20,000

Cash: $2,000

Accounts Receivable: $3,000

Office Supplies: $1,000

Salaries Payable: $5,000

Wages Expense: $15,000

Rent Expense: $2,000

Using this data, determine the net profit or loss for Peter's paper company.

a.) Net Income = $4,000

b.) Net Income = $8,000

c.) Net Income = $22,000

d.) Net Income = $3,000

Answer 1

Service Revenue = $20000 is the income

To Net Income we have to subtract Total Revenue - Total cost

Total Revenue - $20000

Now total cost will be Cost of Office Supplies + Cost of Salaries +cost of Wages + Cost of Rent

Salaries are payable but still the expenses is accrued and so it will be included in calculation of net income.

Also Cash , Account receivable are part of balancesheet and are not consider for calculation of net income

So Total Expenses wiill be $1000 +$5000+$ $15000 +$2000 = $23000

As income is more than expenses There will net loss of ($20000-$23000) =( $3000)