Home › US CMA Part 2 › Financial Management › Using Financial Information and Accounting › Net profit before taxes is $42,900 and income ta…
Net profit before taxes is $42,900 and income taxes for the year are $10,725. What is net profit?
A$32,175
B$53,625
C$42,900
D$10,725
Answer & Solution
Correct answer: A. $32,175
1. Net profit is the bottom line of the income statement, found by subtracting all expenses from revenues.
2. The last step in that sequence is deducting income taxes from net profit before taxes.
3. Net profit before taxes is $42,900.
4. Income taxes are $10,725.
5. Subtract: $42,900 minus $10,725 equals $32,175.
6. Adding tax rather than deducting it gives $53,625, which would reward the firm for owing money.
7. Leaving the figure at $42,900 reports a pre-tax number as though it were the final profit.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.5 The Income Statement_
Related questions
What does a debt-to-equity ratio above 100 percent tell you about who is funding the firm?A bakery reports total liabilities of $70,150 and owners' equity of $78,750. What is its dHow is the debt-to-equity ratio calculated, and which direction is generally better?Why can no single inventory turnover value be called good for every firm?Cost of goods sold was $112,500, beginning inventory was $18,000 and ending inventory was How is the inventory turnover ratio calculated?What do activity ratios reflect?A bakery earned a net profit of $32,175 and has 10,000 shares of common stock outstanding.