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Worked-example setupScope and assumptions
- Granite Harbor is fictional, and all recognition, measurement, and account-population conclusions are supplied for presentation practice.
- Inbound freight is already included in cost of goods sold; delivery cost is a selling cost; interest is outside the supplied operating population.
- Period
- Year ended December 31
- Units
- USD
- Rounding
- Whole USD thousands; no rounding required
Problem
Granite Harbor reports net sales of $2,400,000 and cost of goods sold of $1,440,000. Selling expense is $250,000, general and administrative expense is $310,000, interest expense is $42,000, and income tax expense is $90,000. Prepare the supplied multiple-step sequence and explain what its subtotals do and do not prove.
Controlled statement
| Line | USD |
|---|---|
| Net sales | $2,400,000 |
| Cost of goods sold | (1,440,000) |
| Gross profit | 960,000 |
| Selling expense | (250,000) |
| General and administrative expense | (310,000) |
| Operating income | 400,000 |
| Interest expense | (42,000) |
| Income before tax | 358,000 |
| Income tax expense | (90,000) |
| Net income | $268,000 |
Gross profit is $960,000, and its rate is 40 percent of net sales. Operating income is $400,000 after the two supplied operating-expense captions. Every ledger amount appears once, and the four calculated totals reconcile through net income.
Interpretation boundary
Moving $20,000 from selling expense into cost of goods sold would reduce gross profit to $940,000. Operating income and net income would remain unchanged. The reclassification would therefore change a visible margin without changing total period performance.
The labels do not prove comparability with another entity. A reviewer must check revenue rules, inventory-cost policy, expense populations, specialized guidance, and the other entity's presentation before comparing either subtotal.
Verified calculation · scoped sums
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- amounts
- 6 fields
Inspect data
{
"cost_of_goods_sold": -1440000,
"general_and_administrative_expense": -310000,
"income_tax_expense": -90000,
"interest_expense": -42000,
"net_sales": 2400000,
"selling_expense": -250000
}- totals
- 4 fields
Inspect data
{
"gross_profit": [
"net_sales",
"cost_of_goods_sold"
],
"income_before_tax": [
"net_sales",
"cost_of_goods_sold",
"selling_expense",
"general_and_administrative_expense",
"interest_expense"
],
"net_income": [
"net_sales",
"cost_of_goods_sold",
"selling_expense",
"general_and_administrative_expense",
"interest_expense",
"income_tax_expense"
],
"operating_income": [
"net_sales",
"cost_of_goods_sold",
"selling_expense",
"general_and_administrative_expense"
]
}Recomputed result
| Measure | Value |
|---|---|
| gross profit | 960,000 |
| income before tax | 358,000 |
| net income | 268,000 |
| operating income | 400,000 |