6. A firm reports net sales equal $985,250; gross profit equals $652,475, intere

Question

6. A firm reports net sales equal $985,250; gross profit equals $652,475, interest addition to retained eamings equal $132,500; dividends paid to preferred and common stockholders equal expense equals $56.350, $116,000; administrative and operating expenses equal $195,000. The firm's marginal tax rate is 30 percent. What is the firm's net income? A. less than $178,300 B. more than $178,300 but less than $210,400 C. more than $210,400 but less than $238,500 more than $238,500 but less than $262,600 more than $262,600 D. E.

Explanation / Answer

Answer: A

Net income is the excess of gross profit over all other recurring expenses (including tax). This figure is added with retained earnings and then a subtraction by dividends should be made to get the ending retained earnings figure. Therefore, the portion which added with the retained earnings would be the net income; this is $132,500 and smaller than $178,300.

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