The following is selected information from Alpha-Beta-Gamma Corporation for the fiscal year ending October 31, 2010. Based on the accrual basis of accounting, what is Alpha-Beta-Gamma Corporation's net income for the year ending October 31, 2010?
A) $114,000
B) $134,000
C) $82,000
D) $150,000

Question

The following is selected information from Alpha-Beta-Gamma Corporation for the fiscal year ending October 31, 2010.  Based on the accrual basis of accounting, what is Alpha-Beta-Gamma Corporation's net income for the year ending October 31, 2010?
A) $114,000 
B) $134,000 
C) $82,000 
D) $150,000

Quizplus · Accepted Answer

To calculate net income using the accrual basis of accounting, we need to add up all the revenue earned during the year and subtract all the expenses incurred.

Revenue: 
Sales revenue $1,120,000 
Interest revenue $8,000

Total revenue $1,128,000

Expenses: 
Cost of goods sold $570,000 
Selling and administrative expenses $404,000 
Depreciation expense $150,000 
Interest expense $90,000

Total expenses $1,214,000

Net Income = Total Revenue - Total Expenses
Net Income = $1,128,000 - $1,214,000 
Net Income = -$86,000

However, we need to also consider the gain on the sale of the equipment, which is not included in the revenue or expenses above.

Gain on sale of equipment: 
Proceeds from sale of equipment $220,000 
Book value of equipment sold $120,000

Gain on sale of equipment $100,000

Net Income (including gain on sale of equipment) = Net Income + Gain on sale of equipment
Net Income = -$86,000 + $100,000 
Net Income = $14,000

Therefore, the best choice is B) $134,000.

The Following Is Selected Information from Alpha-Beta-Gamma Corporation for the Fiscal