INCOME STATEMENT

INCOME STATEMENT

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.

 

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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