Asked by Filip Horá?ek on Apr 28, 2024
Verified
The following information has been provided by Flatiron Company for the year ended December 31,2019:
Net income was $71,000;
Income tax expense was $47,000;
Dividends declared and paid totaled $7,500;
Interest expense was $8,700;
Loss on sale of plant assets was $15,000;
Operating expenses for rent,wages,and insurance totaled $91,000;
Cash collected from customers was $220,000.
Calculate Flatiron's operating income.
Operating Income
Earnings before interest and taxes, representing the profit generated from a company's core business operations.
Net Income
The profit a company generates after all expenses, taxes, and costs have been subtracted from total revenue, indicating financial health.
Income Tax Expense
The accounting term for income taxes due to federal, state, and local governments within a given fiscal period.
- Calculate operating income and understand its significance.
Verified Answer
KM
Kayla MelderApr 29, 2024
Final Answer :
Working from the bottom of the income statement,beginning with net income and adding back the expenses until reaching operating income:
Step 1: Net income $71,000 + Income tax expense $47,000 = Income before taxes $118,000.
Step 2: Income before taxes $118,000 + Interest expense $8,700 = Operating income $126,700.
Step 1: Net income $71,000 + Income tax expense $47,000 = Income before taxes $118,000.
Step 2: Income before taxes $118,000 + Interest expense $8,700 = Operating income $126,700.
Learning Objectives
- Calculate operating income and understand its significance.