Question

Allen Corporation has provided the following information: Cash sales totaled $120,000. Credit sales totaled $209,000. Cash collections from customers for services yet to be provided totaled $38,000. Interest income totaled $7,700. Interest expense totaled $14,000 Required: How much of these items should be included in calculating operating income

Answer 1

Answer and Explanation:

The Interest Income and Interest Expense would not be considered while determining the operating income

The cash collections from customers would be treated to be an unearned revenue so the same would be deduted from the sales

The Cash Sales would be

= $120,000 - $38,000

= $82,000.

And, the Credit Sales would be $209,000.

SO, the Total Sales is

= $82,000 + $209,000

= $291,000.

The Unearned Revenue of $38,000 would be shown in the Current Liabilities section of the Balance Sheet.