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4. Calculating Operating Income

in Chapter 3 (Problem 4 of 5)

A company began operations at the start of Year 1.

During the year, it had cash sales of $50,000 and credit sales of $450,000. The company collected $420,000 in cash from the credit sales. The company purchased inventory costing $250,000 and paid $18,000 in dividends. The company incurred the following expenses:

Cost of goods sold 210,000 Rent expense 6,000
Salary expense 80,000 Depreciation expense 4,000
Interest expense 5,000 Income tax expense 57,000

Using this information, answer the following questions.

  1. What would Operating Income on the Dec. 31, Year 1 Income Statement be reported as?
  2. As of Dec. 31, Year 1, determine the ending balance in the Accounts Receivable
  3. Determine Ending Retained Earnings as of December 31, Year 1
Watch Solution (3:55) Hide Solution Reveal Solution
  1. Operating Income - 200,000
  2. Ending Accounts Receivable - 30,000
  3. Ending Retained Earnings - 120,000

The Rest Of The Practice Problems

Click Here to View All Chapter 3 Problems at Once View
1 Revenue Recognition Easy
2 Determining Net Income From Transactions Moderate
3 Determining Net Income From Journal Entries Moderate
4 Calculating Operating Income
You are here. 		Hard
5 Revenue and Expense Recognition Hard
← Chapter 2

Chapter 3 Videos

1 The Multistep Income Statement 12:44
2 Gross Profit vs Net Profit 6:15
3 Profit Margin 3:22
4 Cash vs. Accrual Accounting 7:21
5 Expense Recognition 8:07
Chapter 4 →