Companies generate income from their "regular" operations and from other sources like interest earned on the securities they hold, which is called non-operating income.Lindley Textiles recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,000 of depreciation.The company had no amortization charges and no non-operating income.It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%.How much was Lindley's operating income, or EBIT?

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Quizplus · Accepted Answer

Operating income, or Earnings Before Interest and Taxes (EBIT), is calculated as sales minus operating costs (including depreciation but excluding interest and taxes). For Lindley Textiles, EBIT = Sales - Operating Costs - Depreciation = $12,500 - $7,250 - $1,000 = $4,250.

Companies Generate Income from Their "Regular" Operations and from Other