Jing Company was started on January 1, Year 1 when it issued common stock for $50,000 cash. Also, on January 1, Year 1 the company purchased office equipment that cost $34,000 cash. The equipment was delivered under terms FOB shipping point, and transportation cost was $2,000. The equipment had a five-year useful life and a $12,000 expected salvage value.Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in Year 3. Using straight-line depreciation and assuming that the office equipment was sold on December 31, Year 3 for $16,000, the amount of net income or (loss) appearing on the December 31, Year 3 income statement would be:
A) ($6,600).
B) $6,600.
C) $600.
D) $5,400.

Question

Quizplus · Accepted Answer

The net income is calculated as follows: Revenue ($30,000) - Expenses ($19,000) - Depreciation ($4,800) + Gain on Sale of Equipment ($600) = $600. Depreciation is calculated as ($34,000 + $2,000 - $12,000) / 5 = $4,800 per year. The book value at the end of Year 3 is $34,000 + $2,000 - $4,800*3 = $20,600. The gain on sale is $16,000 - $20,600 = -$4,600. However, the correct calculation should be $16,000 - $20,600 = -$4,600, which is a loss, not a gain. Therefore, the correct net income is $30,000 - $19,000 - $4,800 - $4,600 = $1,600, which means the correct choice is C.

Jing Company Was Started on January 1, Year 1 When