Beginning Retained Earnings Are $35,000; Sales Are $52,000; Expenses Are

question 18

Multiple Choice

Beginning Retained Earnings are $35,000; sales are $52,000; expenses are $44,500 and dividends paid are $3,000. How much is the net income or loss for the company?

• A)$7,500
• B)$17,000
• C)$9,500
• D)($7,500)

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Definitions:

Operating Leverage

Operating leverage refers to the degree to which a company or project can increase operating income by increasing revenue.

Total Leverage

The combination of operating leverage (affecting operating income) and financial leverage (affecting net income), indicating total risk.

Financial Leverage

The use of borrowed funds to finance the acquisition of assets, with the expectation that the profits made will be greater than the interest payable.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenues.