The Following Is Summary of Information Presented on the Financial

question 43

Multiple Choice

The following is summary of information presented on the financial statements of a company on December 31, 2015. $$\begin{array} { | l | r | r | } \hline \text { Account } & { \mathbf { 1 0 1 5 } } & { \mathbf { 2 0 1 4 } } \\\hline \text { Net Sales Revenue } & \$ 600,000 & \$ 500,000 \\\hline \text { Cost of Goods Sold } & \underline { 450,000 } & \underline { 400,000 } \\\hline \text { Gross Profit } & \$ 150,000 & \$ 100,000 \\\hline \text { Selling Expenses } & \underline { 50,000 } & \underline { 50,000 } \\\hline \text { Net income before income taxexpense } & \$ 100,000 & \$ 50,000 \\\hline \text { Income taxexpense } & \underline { 35,000 } & \underline { 18,000 } \\\hline \text { Net Income } & \underline { \$ 65,000 } & \$ 32,000 \\\hline\end{array}$$ What would a horizontal analysis report show with respect to net income?

• A) both net income before income tax expense and net income are 45.45% of net sales revenue
• B) a $25,000 increase in net income
• C) a 45.45% increase in net income
• D) a 103% increase in net income

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Definitions:

Net 20

A payment term indicating that the full payment is due within 20 days from the invoice date.

2/10

A common trade credit term indicating a 2% discount if payment is made within 10 days; otherwise, the full amount is due in 30 days.

Net 30 Day Credit

A payment term indicating that the full payment is due within 30 days from the invoice date.

External Financing

External financing involves acquiring capital from outside sources to fund business operations and investments, such as through loans, issuing equity, or other forms of financial support from outside the company.