8. The following data include all the elements from Cambridge Company income sta
ID: 3199676 • Letter: 8
Question
8. The following data include all the elements from Cambridge Company income statement: Administrative Expense 874 Cost of Goods Sold 3,638 Gain on Sale of Securities 623 Income Tax Expense 1,234 Loss on Discontinued Operations 1,229 Loss on Disposal of Equipment 237 Revenue 8,746 Selling Expense 1,425 What is the amount of gross profit for Cambridge Company? A. 5,731 B. 5,108 C. 5,494 D. 9,369 What is the amount of operating income for Cambridge Company? A. 2,809 B. 5,108 C. 5,494 D. 3,195 8. The following data include all the elements from Cambridge Company income statement: Administrative Expense 874 Cost of Goods Sold 3,638 Gain on Sale of Securities 623 Income Tax Expense 1,234 Loss on Discontinued Operations 1,229 Loss on Disposal of Equipment 237 Revenue 8,746 Selling Expense 1,425 What is the amount of gross profit for Cambridge Company? A. 5,731 B. 5,108 C. 5,494 D. 9,369 What is the amount of operating income for Cambridge Company? A. 2,809 B. 5,108 C. 5,494 D. 3,195Explanation / Answer
Gross profit = Sales Revenue - cost of goods sold = 8746 - 3638 = 5108 (B)
Operating income is also known as EBIT or Earnings before Interest and Taxes and is calculated as -
EBIT = Revenue - operating expense
operating expense = cost of goods sold + administrative expense + loss on disposal of equipment + selling expense = 3638 + 874 + 237 + 1425 = 6174
( income tax expense and loss on discontinued operations are not part of operating expense)
operating profit = gross profit - operating expense = 8746 - 6174 = 2572
operating income = opearting profit + non operating income (gain on sale of securities) = 2572 + 623 = 3195 (D)
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