Analyzing earnings per share

Question

Assignment:

INCOME STATEMENT

Question 1. We reviewed the balance sheet for VWV in the prior module. This time we are examining the income statement for the same entity.

VWV Company
Income Statement
For the Period Ending December 31, 20XX
Revenues		$540,000
Cost of goods sold		200,000
Gross profit		$340,000
Operating expenses
	Salaries	$100,000
	Lease for office	30,000
	Advertising and promotion	24,000
	Utilities	9,700
	Property taxes	18,000
	Payroll taxes	11,500
	Insurance	8,000
	Depreciation	19,922
	Miscellaneous expenses	9,000
Total operating expenses		$230,122
Operating income		$109,878
Interest income		$250
Interest expense		12,000
Net interest expense		$11,750
Net income		$98,128

Use the above income statement to answer the questions below.

1. Is VWV a manufacturer/reseller or a service company?
2. Explain the term cost of goods sold in your own words. Why is this item significant?
3. Does the company have employees?
4. Does the company own some type of property? Can we tell from looking at the income statement alone or do we need to look at the balance sheet too?
5. Are earnings per share important information for VWV Company?
6. How do the dividends affect the income statement?
7. How do we know that VWV Company is using the accrual basis of accounting? Hint: Do not forget to look at the balance sheet from the prior module.
8. Why is the company using the accrual basis of accounting rather the cash basis?
9. Comment on operating income versus net income.