Question

Alejandro Alvera of Alvear Corp was reading the financial statements of Olivas Medical Supply Company to decide whether he wanted to try to acquire the company. He noticed some mistakes in the Olivas Income Statement:

($ millions) Year ended 12/31/15
Sales revenue $1600
Interest Revenue 50
Total Revenue 1650
Cost of Goods Sold (800)
Gross Profit 850
SG&A Expense (400)
Interest Expense (50)
Operating Income 400
Gain on sale of equipment 200
Pre-tax income 600
Income Tax Expense (216)
Net Income 384
What is Olivas' Operating Income for the year ended 12/31/2015 after correcting the mistakes?

$450

$600

$550

$400

$350

Answer 1

$400

Step-by-step explanation:

The computation of the corrected operating income is shown below:

= Sales revenue - costs of goods sold - SG&A Expense

= $1,600 - $800 - $400

= $400

The gross profit would be

= Sales revenue - costs of goods sold

And the operating income would be

= Gross profit - SG&A Expense

For computing the operating income, we deduct the costs of goods sold and the SG&A Expense from the sales revenue