Balance Sheet

Balance Sheet #3

We reviewed the balance sheet for VWV in the prior module. This time we are examining the income statement for the same entity. 

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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  $100,000
  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    $230,122
     
Operating income    $109,878
     
Interest income    $250
Interest expense    12,000 
Net interest expense    $11,750 
     
Net income    $98,128

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 do the dividends affect the income statement?

7. 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.

8. Why is the company using the accrual basis of accounting rather the cash basis?

9. 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.