Question

Value Added Inc. buys $1 million of sow's ears at the beginning of January but doesn't pay immediately. Instead, it agrees to pay the bill in March. It processes the ears into silk purses, which it sells for $2 million in February. However, it will not collect payment on the sales until April. (Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Enter your answers in thousands of dollars not in millions.)


(a) What is the firm’s net income in February?

(b) What is its net income in March?

Answer 1

Answer and Explanation:

The computation is shown below:

Firm net income in Feb is

= Sales - cost of goods sold

= $2,000,000 - $1,000,000

= $1,000,000

Now the net income is

= $1,000,000 ÷ 1,000

= 1,000 thousands

b. For the month of march, the net income is zero

By using the above formula the correct amount could come and the same is to be considered