The fair market value of Borke Company's net assets was $250,000 and $325,000 at the beginning and end of the year. The book value of the same net assets was $200,000 and $260,000. Revenues for the year were $317,000, and there were no transactions with owners. What is net income for the current year?
A)$ 60,000
B)$ 75,000
C)$377,000
D)$392,000

Question

Quizplus · Accepted Answer

To calculate net income, we need to use the formula:
Net Income = Revenues - Expenses
Expenses = Ending Book Value - Beginning Book Value
Expenses = $260,000 - $200,000 = $60,000
Revenues = $317,000
Net Income = $317,000 - $60,000 = $257,000
However, we need to adjust the net income for the change in fair market value of net assets, which is an unrealized gain/loss. 
Change in Fair Market Value = Ending Fair Market Value - Beginning Fair Market Value
Change in Fair Market Value = $325,000 - $250,000 = $75,000 (unrealized gain)
Adjusted Net Income = Net Income +/- Change in Fair Market Value
Adjusted Net Income = $257,000 - $75,000 = $182,000
Therefore, the correct answer is B) $75,000.

The Fair Market Value of Borke Company's Net Assets Was