Determining Income The Alto Company prepared an income statement for its bank in support of its re- quest to renew a loan that comes due January 3, 2002. The reported net income for 2001 was $54,500. However, Alto did not make any adjusting entries for the following:

1. In January 2001, Alto recorded as prepaid insurance the

$15,000 cost of a three-year liability insurance policy covering its store operations.

2. On January 2, 2001, Alto borrowed $100,000 from the bank for 12 months at 9 percent interest. No interest expense entries have been made.

3. The bank loan was used to purchase three new delivery trucks in January 2001 for a total cost of $100,000. The trucks are expected to last five years. While the purchase was correctly recorded, no further entries were made relating to these trucks.

Required:

a. What is the correct net income for Alto Company for 2001?

b. The banker has informed Alto that it must have 2001 earnings of at least $20,000 for the loan to be renewed for an additional year. Does Alto qualify?