Question

1. The Nowland Company reported the following items on its financial statements for the year ended December 31, 2019: Sales $780,000, Selling, General and Administrative expenses $20,000, Dividends $5,000, Cost of Goods Sold $700,000, Interest expense $15,000, and Income tax expense $12,500. What is Nowland's Net Income for 2019?

A. $22,500

B. $80,000

C. $42,500

D. $32,500

2. Upon organizing the new business, one of the owners invested Cash of $12,000 and Machinery valued at $11,300 receiving Common stock in exchange for those assets. The journal entry the business will make to record this transaction should include:

• A. Debiting Cash for $12,000 and Machinery for $11,300 and Crediting Common stock for $23,300.
• B. Debiting Machinery for $11,300 and Common stock for $700 and Crediting Cash for $12,000
• C. Debiting Common stock for $23,300 and Crediting Cash for $12,000 and Machinery for $11,300
• D. Debiting Cash for $12,000 and Crediting Machinery for $11,300 and Common stock for $700

Answer 1

Calculate net income

Sales	780000
Selling, General and Administrative expenses	-20000
Cost of goods sold	-700000
Interest expense	-15000
Income tax	-12500
Net income	32500

So answer is d) $32500

Journal entry

No	General Journal	Debit	Credit
	Cash	12000
	Machinery	11300
	Common Stock		23300

So answer is a) Debiting Cash for $12,000 and Machinery for $11,300 and Crediting Common stock for $23,300.