The following select account data is taken from the records of Reese Industries for 2019.
\begin{tabular}{|l|l|l|}
\hline \multicolumn{3}{|c|}{Reese Industries data} \\
\hline Account & Amount & \\
\hline Sales & & \$677,698 \\
\hline Merchandise Inventory & & 542.680 \\
\hline Sales Discounts & & \\
\hline Interest Expense & & 52,690 \\
\hline Sales Returns and Allowances & & 3,376 \\
\hline Interest Revenue & & 80,000 \\
\hline Cost of Goods Sold & & 10,733 \\
\hline & & 241,988 \\
\hline Rent Expense & & 13,941 \\
\hline Depreciation Expense: Office Equipment & & 3,221 \\
\hline Insurance Expense & & 2,367 \\
\hline Advertising Expense & & 10.389 \\
\hline Accounts Receivable & & 91,678 \\
\hline Office Supplies Expense & & 1,857 \\
\hline Rent Revenue & & 20,665 \\
\hline Sales Salaries Expense & & 25,717 \\
\hline Accounts payable & & 127,986 \\
\hline Common Stock & & 57.933 \\
\hline Marketing expense & & 30,342 \\
\end{tabular}
Use the data provided to calculate net income for 2019.
Answer (1)
Calculate Net Sales by subtracting Sales Discounts and Sales Returns and Allowances from Sales: $Net Sales = Sales - Sales Discounts - Sales Returns and Allowances = 663 , 589 . - Determine Gross Profit by subtracting Cost of Goods Sold from Net Sales: $Gross Profit = Net Sales - Cost of Goods Sold = 421 , 601 .
Compute Total Operating Expenses by summing Rent Expense, Depreciation Expense, Insurance Expense, Advertising Expense, Office Supplies Expense, Sales Salaries Expense, and Marketing Expense: $Total Operating Expenses = 87 , 834 . - Calculate Net Income by adding Income from Operations and Total Other Income and Expenses: $Net Income = Income from Operations + Total Other Income and Expenses = 361 , 077 .
Explanation
Understanding the Problem We are given the task of calculating the net income for Reese Industries for the year 2019 using the provided account data. To do this, we will follow a standard accounting formula, which involves calculating net sales, gross profit, total operating expenses, income from operations, total other income and expenses, and finally, net income.
Calculating Net Sales First, we need to calculate the net sales. Net sales is calculated by subtracting sales discounts and sales returns and allowances from the total sales. N e tS a l es = S a l es − S a l esD i sco u n t s − S a l es R e t u r n s an d A ll o w an ces Net Sales = $677,698 - $10,733 - $3,376 = $663,589 So, the net sales for Reese Industries in 2019 is $663,589.
Calculating Gross Profit Next, we calculate the gross profit. Gross profit is calculated by subtracting the cost of goods sold from the net sales. G ross P ro f i t = N e tS a l es − C os t o f G oo d s S o l d Gross Profit = $663,589 - $241,988 = $421,601 Thus, the gross profit for Reese Industries in 2019 is $421,601.
Calculating Total Operating Expenses Now, we need to calculate the total operating expenses. This includes rent expense, depreciation expense, insurance expense, advertising expense, office supplies expense, sales salaries expense, and marketing expense. T o t a lOp er a t in g E x p e n ses = R e n tE x p e n se + De p rec ia t i o n E x p e n se + I n s u r an ce E x p e n se + A d v er t i s in g E x p e n se + O ff i ce S u ppl i es E x p e n se + S a l es S a l a r i es E x p e n se + M a r k e t in g E x p e n se Total Operating Expenses = $13,941 + $3,221 + $2,367 + $10,389 + $1,857 + $25,717 + $30,342 = $87,834 Therefore, the total operating expenses for Reese Industries in 2019 is $87,834.
Calculating Income from Operations We then calculate the income from operations. This is found by subtracting the total operating expenses from the gross profit. I n co m e f ro m Op er a t i o n s = G ross P ro f i t − T o t a lOp er a t in g E x p e n ses Income from Operations = $421,601 - $87,834 = $333,767 Hence, the income from operations for Reese Industries in 2019 is $333,767.
Calculating Total Other Income and Expenses Next, we determine the total other income and expenses. This is calculated by subtracting interest expense from interest revenue. T o t a lOt h er I n co m e an d E x p e n ses = I n t eres tR e v e n u e − I n t eres tE x p e n se Total Other Income and Expenses = $80,000 - $52,690 = $27,310 So, the total other income and expenses for Reese Industries in 2019 is $27,310.
Calculating Net Income Finally, we calculate the net income. This is found by adding the income from operations to the total other income and expenses. N e t I n co m e = I n co m e f ro m Op er a t i o n s + T o t a lOt h er I n co m e an d E x p e n ses Net Income = $333,767 + $27,310 = $361,077 Thus, the net income for Reese Industries in 2019 is $361,077.
Final Answer The net income for Reese Industries in 2019 is $\boxed{ 361,077} .
Examples
Understanding net income is crucial for assessing a company's profitability. For example, if you're analyzing a small business to potentially invest in it, calculating the net income helps you understand how efficiently the business is managed. By examining revenues, expenses, and other income sources, you can determine if the business is generating a sustainable profit. This insight is vital for making informed investment decisions and assessing the overall financial health of the company.
