We reviewed the balance sheet for VWV in the prior module. This time we are examining the income statement for the same entity.
VWV Company
Income Statement
For the Period Ending December 31, 20XX
Revenues
$540,000
Cost of goods sold
200,000
Gross profit
$340,000
Operating expenses
Salaries
$120,000
Lease for office
30,000
Advertising and promotion
24,000
Utilities
9,700
Property taxes
18,000
Payroll taxes
11,500
Insurance
8,000
Depreciation
19,922
Miscellaneous expenses
9,000
Total operating expenses
$250,122
Operating income
$89,878
Interest income
$2,500
Interest expense
12,000
Net interest expense
$9,500
Net income
$80,378
Use the above income statement to answer the questions below.
Is VWV a manufacturer/reseller or a service company?
Explain the term cost of goods sold in your own words. Why is this item significant?
Does the company have employees?
Does the company own some type of property? Can we tell from looking at the income statement alone or do we need to look at the balance sheet too?
Are earnings per share important information for VWV Company?
How is depreciation computed and what is the purpose of including depreciation expense?
How do the dividends affect the income statement?
How do we know that VWV Company is using the accrual basis of accounting? Hint: Do not forget to look at the balance sheet from the prior module.
Why is the company using the accrual basis of accounting rather than the cash basis?
Comment on operating income versus net income.
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