Question

Kramer Corporation reported the following amounts at the end of the first year of operations. What are the reported amounts?

1) Income: $100,000, Expenses: $80,000, Net Income: $20,000
2) Income: $80,000, Expenses: $100,000, Net Income: -$20,000
3) Income: $100,000, Expenses: $100,000, Net Income: $0
4) Income: $80,000, Expenses: $80,000, Net Income: $0

Answer 1

The reported amounts consistent with Kramer Corporation's financial results at the end of the first year of operations are as follows:

`\[ \text{Income: } $100,000, \text{Expenses: } $80,000, \text{Net Income: } $20,000 \]`

Step-by-step explanation:

The reported amounts align with the fundamental equation of accounting, where Net Income is derived by subtracting Expenses from Income. Mathematically, this relationship can be expressed as:

`\[ \text{Net Income} = \text{Income} - \text{Expenses} \]`

In the provided scenario, the Income of $100,000 minus the Expenses of $80,000 indeed results in the reported Net Income of $20,000, confirming the accuracy of option 1.

This financial snapshot demonstrates a positive Net Income, indicating that Kramer Corporation generated a profit during its first year of operations. This is a favorable outcome for stakeholders, signaling the company's ability to cover its expenses and potentially reinvest in its growth. The reported amounts hold significant importance in financial analysis, offering insights into the company's profitability and overall financial performance.

It's crucial to note that the other options present scenarios where the Net Income is either negative or zero, suggesting losses or break-even situations. However, the correct interpretation of Kramer Corporation's financial status, based on the provided data, is reflected in the reported amounts of option 1, showcasing a healthy positive Net Income.