The Following Information Is from L&H's 2004 Income Statement -Pre-Tax Earnings Growth of 50% for 2005 Has Just Been

question 16

Multiple Choice

The following information is from L&H's 2004 income statement:
$\begin{array}{|l|r|r|}\hline&&2004\\\hline \text { Sales } & \$ 14,000 \\\hline \text { Investment income } & 800 \\\hline && \$ 14,800 \\\hline \text { Cost of goods sold } & \$ 7,000 \\\hline \text { Depreciation expense } & 2,500 \\\hline \text { Amortization expense } & 2,000 \\\hline \text { Interest expense } & 700 \\\hline && \$ 12,200 \\\hline \text {Pre-tax income}&&\$2,600\\\hline\end{array}$
-Pre-tax earnings growth of 50% for 2005 has just been announced after the close of trading, but further disclosure will not be made until tomorrow. That night, you review 2004 and conclude that, all else being equal, in 2005

• A) Sales decreased by approximately $1,400
• B) Sales increased by approximately $2,600
• C) Investment income doubled, enabling L&H to cut interest expense by $500
• D) L&H sold investments and/or fixed assets, realizing a gain of $1,300

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Definitions:

Hydrolysis

A chemical reaction in which water is used to break down the bonds of a particular substance.

Activation Energy

The minimum amount of energy required to initiate a chemical reaction.

Biological Catalysts

Enzymes that speed up chemical reactions in biological processes without being consumed.

Enzymes

Biological catalysts that speed up chemical reactions in living organisms by lowering the activation energy.