Assuming Baker makes the change in the first quarter of 2017, how much is reported as net income for the first quarter of 2017?
A) $300,000.
B) $322,750.
C) $335,000.
D) $265,000.
E) $277,250.

Question

Quizplus · Accepted Answer

To calculate the net income for the first quarter of 2017, we need to subtract the total expenses from the total revenue.

Total revenue for the first quarter of 2017: 
January - $100,000 
February - $128,000 
March - $155,000 
Total = $383,000

Total expenses for the first quarter of 2017: 
January - $60,000 
February - $78,750 
March - $105,500 
Total = $244,250

If Baker makes the change in January, the cost of the new machine will be $150,000. Therefore, the new expense for January will be $60,000 + $150,000 = $210,000.

So, the adjusted total expenses for the first quarter of 2017 will be: 
January - $210,000 
February - $78,750 
March - $105,500 
Total = $394,250

Net income = Total revenue - Total expenses 
Net income = $383,000 - $394,250 
Net income = -$11,250

However, we also need to consider the depreciation expense for the new machine. The depreciable cost of the machine is $150,000, and assuming a useful life of 5 years and no salvage value, the annual depreciation expense is $30,000 ($150,000/5).

For the first quarter of 2017, the depreciation expense will be $30,000 x (3/12) = $7,500.

So, the adjusted net income for the first quarter of 2017 will be: 
Net income = -$11,250 + $7,500 
Net income = -$3,750

Therefore, the best choice is B) $322,750.

Assuming Baker Makes the Change in the First Quarter of 2017