Lee’s accountant recorded the depreciation on his cottage during 2012 as $7,000. According to the accountant, what profit did Lee make?
Lee is a computer programmer who earned $35,000 in 2011. But on January 1, 2012, Lee opened a body board manufacturing business. At the end of the first year of operation, he submitted the following information to his accountant:
• He stopped renting out his cottage for $3,500 a year and used it as his factory. The market value of the cottage increased from $70,000 to $71,000.
• He spent $50,000 on materials, phone, etc.
• He leased machines for $10,000 a year.
• He paid $15,000 in wages.
• He used $10,000 from his savings account, which earns 5 percent a year interest.
• He borrowed $40,000 at 10 percent a year.
• He sold $160,000 worth of body boards.
• Normal profit is $25,000 a year.