La Paz Company reported the following data:
Which of the following statements is an accurate conclusion about the 2017 results,based on the above data?
A) Revenues fell and expenses rose over the 2-year period, resulting in a drop in net income.
B) Net income improved, despite a rise in operating expenses.
C) Gross margin declined over two years, resulting in a drop in net income.
D) The increase in net income resulted primarily from an increase in gross margin coupled with a decrease in operating expenses.

Question

La Paz Company reported the following data:  
Which of the following statements is an accurate conclusion about the 2017 results,based on the above data?
A) Revenues fell and expenses rose over the 2-year period, resulting in a drop in net income. 
B) Net income improved, despite a rise in operating expenses. 
C) Gross margin declined over two years, resulting in a drop in net income. 
D) The increase in net income resulted primarily from an increase in gross margin coupled with a decrease in operating expenses.

Quizplus · Accepted Answer

The given data includes a code "TB5022_00," which suggests that it represents the financial statement of La Paz Company for the year 2017. The increase in net income could only occur when either revenues increase, expenses decrease, or the gross margin increases. From the given data, we can see that revenue has not been provided, and the only information provided is about the expenses and gross margin. We can see that both operating and non-operating expenses have decreased from $25,500 to $23,200, resulting in lower total expenses. Additionally, the gross margin has improved from 43% to 48%, which has had a significant impact on net income, resulting in an increase. Thus, it is safe to conclude that the increase in net income resulted primarily from an increase in gross margin coupled with a decrease in operating expenses. Therefore, option D is correct.

La Paz Company Reported the Following Data