Angle Inc.announces that its gross profit rose 5% but its income before income taxes fell.Which of the following statements is correct?
A) This is not possible given that net income is determined by gross profit.
B) This must mean that selling, general, and administrative expenses increased by more than 5%.
C) This must mean that sales revenue rose more than expenses.
D) This must mean that cost of goods sold fell.

Question

Quizplus · Accepted Answer

A rise in gross profit indicates an increase in revenue or a decrease in cost of goods sold. However, since the income before income taxes fell, it suggests an increase in expenses such as selling, general, and administrative expenses. Therefore, option B is the most likely explanation.

Angle IncAnnounces That Its Gross Profit Rose 5% but Its Income