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    Income Statement

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    Gill Bates, Jr. spent $1,000,000 developing a software utility that is intended to be sold to small businesses. In his first full year of business following the development, he sold 50,000 copies at $109 each. The direct cost of packaging, and fulfilling orders for the software was $34 per unit. Overhead costs are 10% of this direct cost.

    The largest expense was servicing customers following sales. The following costs were incurred including all equipment which will be replaced annually.
    Software Maintenance $300,000
    Customer Service $200,000
    Marketing & Sales $350,000

    Gill and his immediate staff were paid $500,000. Financing was by an Angel investor who received a 35% ownership and one loan of $250,000. Interest only at 8.3% is paid annually on the loan.

    Tax rate is 20%.

    Prepare an Income Statement for this first year of operation using three year MACRS depreciation.

    Note: Software development is depreciable for a product that is sold. See http://www.irs.gov/businesses/small/article/0,,id=137026,00.html

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