Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in accounts payable for the inventory purchased in Event 1. (4) Sold inventory purchased in Event 1 for $5,000 to customers on account. At the end of the first accounting period what would be reported on the Income Statement for net income?

Question

Business

Josie Lopez

1 October, 10:35

Amarillo Company experienced the following events during its first accounting period. (1) Purchased $5,000 of inventory on account. (2) Returned $1,000 of the inventory purchased in Event 1. (3) Paid the remaining balance in accounts payable for the inventory purchased in Event 1. (4) Sold inventory purchased in Event 1 for $5,000 to customers on account. At the end of the first accounting period what would be reported on the Income Statement for net income?

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Christopher Ford · Answer 1

The answer is: $1,000

Explanation:

We are given the following events for Amarillo Company:

Purchased $5,000 inventory Returned $1,000 inventory Paid $4,000 inventory Sold inventory at $5,000

We can elaborate a simple income statement:

Sales $5,000

Cost of goods sold $4,000

Gross profit $1,000

Since we don't know any other expenses, we can assume the gross profit equals net income.