Asked by Haktan Öztürkçü on Apr 28, 2024
Verified
Which one of the following statements is true when a company sells inventory costing $800 for $1,400 cash,and operating expenses are $500?
A) There is no change in current assets.
B) Stockholders' equity increases $100.
C) Gross profit increases $100.
D) Net sales increases $2,200.
Gross Profit
Revenue from sales minus the cost of goods sold before administrative, financial, and other operating expenses are deducted.
Stockholders' Equity
The residual interest in the assets of a corporation after deducting its liabilities, indicating the ownership value.
- Discover and measure elements of the income statement and balance sheet.
- Understand how specific transactions affect financial statements and ratios.
Verified Answer
PL
Pamela LewisMay 03, 2024
Final Answer :
B
Explanation :
The sale of inventory for $1,400 cash increases cash (a current asset) by $1,400 and decreases inventory (another current asset) by $800, resulting in a net increase in current assets of $600, not leaving them unchanged. The gross profit from this transaction is $600 ($1,400 sales - $800 cost of goods sold), not $100. Operating expenses of $500 need to be subtracted from the gross profit to find the increase in stockholders' equity due to net income, which is $100 ($600 gross profit - $500 operating expenses). Net sales increase by $1,400, not $2,200, as this is the amount the inventory was sold for.
Learning Objectives
- Discover and measure elements of the income statement and balance sheet.
- Understand how specific transactions affect financial statements and ratios.
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