bus500 slp3

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.

  1. Is VWV a manufacturer/reseller or a service company?
  2. Explain the term cost of goods sold in your own words. Why is this item significant?
  3. Does the company have employees?
  4. 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?
  5. Are earnings per share important information for VWV Company?
  6. How is depreciation computed and what is the purpose of including depreciation expense?
  7. How do the dividends affect the income statement?
  8. 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.
  9. Why is the company using the accrual basis of accounting rather than the cash basis?
  10. 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.

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