Question

Emerald, Inc., earned revenues of $62,000 and incurred expenses of $78,000. No dividends were declared. Which of the following statements is​ correct?"

a) Emerald, Inc. experienced a net loss of $16,000
b) Emerald, Inc. had a net income of $16,000
c) Emerald, Inc. had a net loss of $140,000
d) Emerald, Inc. had a net income of $140,000

Answer 1

Emerald, Inc. had a net loss of $16,000, which is calculated by subtracting expenses of $78,000 from revenues of $62,000. Similarly, a hypothetical firm's accounting profit would be $50,000 if it earned revenues of $1 million and incurred expenses totaling $950,000.

Step-by-step explanation:

The correct statement regarding Emerald, Inc.'s financial results is that Emerald, Inc. experienced a net loss of $16,000. This is determined by subtracting the total expenses from the total revenues. In this case, $78,000 (expenses) subtracted from $62,000 (revenues) equals a net loss of $16,000. Since no dividends were declared, this number represents the net change in equity for the period due to operations.

Now, speaking in general terms regarding the self-check question provided for reference, if a firm had sales revenue of $1 million last year and spent $600,000 on labor, $150,000 on capital, and $200,000 on materials, the firm's accounting profit would be calculated as follows:

Accounting profit = Total revenues - Explicit costs = $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.