Question

Alpha Company provided the following data concerning its income statement: sales, $1,025,000; purchases, $368,000; beginning inventory, $235,000; ending inventory, $297,000; operating expenses, $111,000; freight-in, $5,000; sales discounts, $15,000; purchases discounts, $15,000; sales returns & allowances, $101,000; and purchases returns & allowances, $32,000. The data are complete and provide the basis for preparation of an income statement. How much is net income?

Answer 1

Net income        [Refer working note 1]

$534,000

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Working note 1 - Calculation of net income / (loss)
Net sales                                     [Refer working note 2]		$909,000
Expenses:
Cost of Goods Sold                  [Refer working note 3]	$264,000
Operating Expenses	$111,000
Total expenses                          [$264,000 + $111,000]		$375,000
Net income                                 [$909,000 - $375,000]		$534,000

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Working note 2
Sales	$1,025,000
Less: Sales discount	$15,000
Less: Sales returns and Allowances	$101,000
Net Sales	$909,000

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Working note 3
Beginning merchandise inventory		$235,000
Purchases	$368,000
Less: Purchase Returns and Allowances	$32,000
Purchase Discounts	$15,000
Net Purchases	$321,000
Plus: Freight in	$5,000
Net Cost of Purchases                        [$321,000 + $5,000]		$326,000
Cost of Goods Available for Sale     [$235,000 + $326,000]		$561,000
Less: Ending merchandise inventory		$297,000
Cost of Goods Sold.                          [$561,000 - $264,000]		$264,000