Question

The adjusted trial balance of Pacific Scientific Corporation on December 31, 2021, the end of the company's fiscal year, contained the following income statement items ($ in millions): sales revenue, $2,106; cost of goods sold, $1,240; selling expense, $126; general and administrative expense, $105; interest expense, $40; and gain on sale of investments, $45. Income tax expense has not yet been recorded. The income tax rate is 25%. Assume the company's accountant prepared a multiple-step income statement.

a. What amount would appear in that statement for operating income?
b. What amount would appear in that statement for nonoperating income?

Answer 1

Income Statement
Sales revenue		$2,106
Cost of goods sold		1,240
Gross profit		866
Operating expenses:
Selling expense	$126
Administrative expense	105
Total operating expense		231
Operating income		635
Non operating or Other
Interest expense	(40)
Gain on sale of investment	45
Total non operating		5
Income before income tax		640
Less: Income tax@25%		160
Net operating income		$480

a. Operating income will appear as $635

b. Non operating income would appear as $5