Kershner says: "Our income statement should be looking good this year. We've been doing excellent business this year, so we have a lot of gross sales. The company should be in good shape." Michaels replies: "It remains to be seen how our income statement will look overall. In spite of strong sales revenue, the overall income statement might not be as good as we might hope."
Which of the following, if true, would strengthen Kershner's argument?
A) The total operating expenses were high in the current year.
B) The company's rent went up 30 percent from the previous year.
C) The cost of goods sold was low compared to gross sales.
D) The company is a small one compared to its competitors.
E) The company has a solid core of fixed assets.

Question

Quizplus · Accepted Answer

A low cost of goods sold compared to gross sales means that the company has a higher gross profit margin, which would support Kershner's claim that the company has had strong gross sales and would contribute to a positive income statement. The other options are either irrelevant or potentially negative factors that could affect the overall income statement.

Kershner Says: "Our Income Statement Should Be Looking Good This