Jing Company was started on January 1, Year 1 when it issued common stock for $39,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $16,300 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,400. The equipment had a five-year useful life and a $6,100 expected salvage value.Assume that Jing Company earned $26,200 cash revenue and incurred $16,500 in cash expenses in Year 3. Using straight-line depreciation and assuming that the office equipment was sold on December 31, Year 3 for $10,000, the amount of net income or (loss) appearing on the December 31, Year 3 income statement would be:
A) ($2,460).
B) $3,060.
C) $6,040.
D) $5,940.

Question

Quizplus · Accepted Answer

The net income is calculated as follows: Revenue ($26,200) - Expenses ($16,500) - Depreciation Expense ($2,920) + Gain on Sale of Equipment ($1,260) = $6,040. Depreciation is calculated as ($16,300 + $2,400 - $6,100) / 5 = $2,920 per year. The gain on sale is calculated as Sale Price ($10,000) - Book Value at end of Year 3 ($7,820) = $1,260.

Jing Company Was Started on January 1, Year 1 When