Question

A company reports the following amounts at the end of the current year:________.Sales revenue $860,000Selling expenses 250,000Gain on the sale of land 30,000Interest expense 10,000Cost of goods sold 520,000Under normal circumstances (ignoring tax effects), permanent earnings would be computed as:_______.a) $90,000.b) $80,000.c) $50,000.d) $110,000.

Answer 1

Option B is the correct answer,as permanent earnings is $80000 as shown below.

Step-by-step explanation:

Permanent earnings refer to earnings from continued operations of the business.Hence gain on sale of land of $30000 is transitory earnings that is not likely to occur frequently.

Permanent earnings is computed as follows:

Sales revenue $860000

Cost of goods sold ($520000)

selling expenses ($250000)

Interest expense ($10000)

Net income $80000

From the above computation without considering the gain on sale of land the net earnings is $80000