In January, DropoutEdu sold and delivered $100 worth of textbooks to customers. Assuming a 25% tax rate, how much would DropoutEdu report in earnings in January?
Answer: 75
Explanation: First, the goods were transferred in January, it aligns with the reporting period (January) on the statement. Second, revenue affects earnings to common shareholders. So, this transaction will show up on the income statement.
Revenue is up by $100. Pre-tax income is up by $100. Taxes are $25 (25% x $100). So, net income is $75 ($100 – $25).
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