Part 3: Solution
Use the following information to answer the next five questions.
| Cost of Goods Sold |
$125,000 |
| Income Tax Expense |
30,000 |
| Interest Expense |
80,000 |
| Interest Revenue |
3,000 |
| Misc. Operating Expenses |
15,000 |
| Property Tax Expense |
4,000 |
| Rent Expense |
12,000 |
| Sales Commissions |
50,000 |
| Sales Salaries |
15,000 |
| Sales |
400,000 |
| Utility Expense |
16,000 |
Let's see how well you answered the questions.
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1. |
What will Gross Margin be? |
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Your Answer:
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Correct Answer: $275,000 |
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Sales - Cost of Goods Sold = Gross Margin =$400,000 - $125,000 = $275,000. |
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2. |
What will Total Operating Expenses be in a multiple-step income statement? |
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Your Answer:
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Correct Answer: $102,000 |
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The expenses included are Miscellaneous Operating Expenses, Property Tax Expense, Rent Expense, Sales Commissions, Sales Salaries, and Utility Expense. |
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3. |
What will Total Other Revenues and Expenses be? |
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Your Answer:
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Correct Answer: $77,000 |
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Interest revenue is $3,000, while Interest Expense is $80,000. These are the only two items in the other revenue and expense category. |
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4. |
In a single-step income statement, what is Income before Taxes? |
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Your Answer:
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Correct Answer: $96,000 |
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Sales of $400,000 and interest revenue of $3,000, less all expenses except income tax, gives income before tax. |
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5. |
In a multiple-step income statement including Gross Margin and an Other Revenues and Expenses section, what is Income before Taxes? |
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Your Answer:
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Correct Answer: $96,000 |
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Income before taxes is the same regardless of income statement format. This subtotal comes after all other revenue and expense amounts except for income taxes, regardless of statement format. |
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