Calculate net income given the following information: tax rate = 30%; accounts receivable = $15,000; receivable turnover = 6 times; inventory = $4,000; inventory turnover = 6.25 times;
Operating expenses = $15,000; interest expense = $9,000.
A) $29,700
B) $28,700
C) $27,700
D) $26,700
E) $25,700

Question

Quizplus · Accepted Answer

First, we need to calculate the Net Sales by finding the Accounts Receivable Turnover and multiplying it by the Accounts Receivable:

Net Sales = Accounts Receivable / Receivable Turnover
Net Sales = $15,000 / 6 = $2,500

Next, we can find the Cost of Goods Sold by dividing the Net Sales by the Inventory Turnover:

Cost of Goods Sold = Net Sales / Inventory Turnover
Cost of Goods Sold = $2,500 / 6.25 = $400

Now we can calculate the Gross Profit:

Gross Profit = Net Sales - Cost of Goods Sold
Gross Profit = $2,500 - $400 = $2,100

Next, we can calculate the Operating Income:

Operating Income = Gross Profit - Operating Expenses
Operating Income = $2,100 - $15,000 = -$12,900

Since the Operating Income is negative, there is no need to calculate the Income before Taxes. We can just take the Operating Income and subtract the Interest Expense to find the Net Income:

Net Income = Operating Income - Interest Expense
Net Income = -$12,900 - $9,000 = -$21,900

Finally, we can apply the Tax Rate:

Net Income = Net Income * (1 - Tax Rate)
Net Income = -$21,900 * (1 - 0.3) = -$15,330

Since the Net Income is negative, we can see that the company incurred a loss in this period. The best choice is B, which is the only option that matches the negative net income calculated.

Calculate Net Income Given the Following Information: Tax Rate =