Question

Selected information taken from the financial statements of Verbeke Co. for the year ended December 31, 2019, follows: Gross profit $411,000 General and administrative expenses 84,000 Net cash used by investing activities 104,000 Dividends paid 54,000 Interest expense 62,000 Net sales 743,000 Advertising expense 76,000 Accounts payable 100,000 Income tax expense 80,000 Other selling expenses 43,000 Required: a. Calculate income from operations (operating income) for the year ended December 31, 2019. b. Calculate net income for the year ended December 31, 2019.

Answer 1

Answer:

a. Income from operation is $208,000

b. Net income is $66,000

Explanation:

a. The computation of the income from operation is shown below:

= Gross profit - operating expenses

where,

Gross profit is $411,000

And, the operating expenses = General and administrative expenses +  Advertising expense + Other selling expenses

= $84,000 + $76,000 + $43,000

= $203,000

Now put these values to the above formula

So, the answer would be equal to

= $411,000 - $203,000

= $208,000

b. Now the net income would equal to

= Earning before interest and taxes - income tax expense

where,

Earning before interest and taxes = Income from operations - interest expense

= $208,000 - $62,000

= $146,000

And, the income tax expense is $80,000

Now put these values to the above formula

So, the answer would be equal to

= $146,000 - $80,000

= $66,000