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

Lily Hess

Business

28 October, 19:59

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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Aiyana Rollins · 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.