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Gross profit is $158,000 and total operating expenses are $115,100. What is net profit before taxes?
A$273,100
B$115,100
C$42,900
D$158,000
Answer & Solution
Correct answer: C. $42,900
1. Finding net profit runs through a fixed sequence of subtractions.
2. Cost of goods sold comes off net sales first, which gives gross profit.
3. Total operating expenses are then subtracted from gross profit to give net profit before taxes.
4. Gross profit is $158,000.
5. Total operating expenses are $115,100.
6. Subtract: $158,000 minus $115,100 equals $42,900.
7. Adding the two gives $273,100, which treats the cost of running the business as though it were income.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.5 The Income Statement_
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