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You invest $8,000 in an on-line bookstore in the form of a corporation on Jan. 2....

You invest $8,000 in an on-line bookstore in the form of a corporation on Jan. 2. For the sake of simplicity, you are the only shareholder who owns this corporation. You also decide to take on $10,000 liabilities with 20% annual interest rate. You spend $6,000 cash to buy books as the inventory. Throughout the year, you sell half of books to students in exchange for $9,000 cash, that is, your revenue is $9,000 and COGS is $3,000. Also, $2,000 cash dividend is paid at the end of the year. Tax rate is 40%.

All entries of balance sheet are zero at the beginning of the year (Jan. 1).

What is net income during the year?

Solutions

Expert Solution

Answer : Below is the Table showing Calculation of Net Income :

Amount
Sales 9000
Less :Cost of Goods Sold 3000
Gross Profit 6000
Earning Before Tax (EBT) 6000
Income Tax (40%) 2400
Net Income 3600
Common Stock Dividend Paid 2000
Addition to retained Earning 1600

jeff jeffy answered 2 years ago
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