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 |
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Income Statement |
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For the Period Ending December 31, 20XX |
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Revenues |
$540,000 |
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Cost of goods sold |
200,000 |
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Gross profit |
$340,000 |
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Operating expenses |
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Salaries |
$120,000 |
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Lease for office |
30,000 |
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Advertising and promotion |
24,000 |
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Utilities |
9,700 |
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Property taxes |
18,000 |
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Payroll taxes |
11,500 |
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Insurance |
8,000 |
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Depreciation |
19,922 |
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Miscellaneous expenses |
9,000 |
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Total operating expenses |
$250,122 |
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Operating income |
$89,878 |
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Interest income |
$2,500 |
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Interest expense |
12,000 |
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Net interest expense |
$9,500 |
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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.
SLP Assignment Expectations
Use Word and respond in a question-and-answer format. There is no need to use Excel for this particular SLP.