Question

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

Answer 1

Answer:

Alvear Corp.'s Operating Income for the year ended 12/31/2015 after correcting the mistakes is $0.

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question. See the attached pdf file file for the complete question.

The explanation of the answer is now provided as follows:

Operating income refers to the amount of profit that a business realized from its operations after operating expenses have been deducted.

Operating expenses are cost incurred by a business in its normal business operations.

The following two mistakes are prominent in the income statement in this question:

1. Gain on sale of equipment is included as part of Total Revenue instead of including under Other Income.

2. Interest Expense is included as part of operating expenses instead of including it under Interest income (expenses).

To correct this mistake, the income statement is prepared again appropriately using a Multi-step income statement format that shows gross profit and the detailed of each category of expenses and incomes to arrive at the net income.

Note: See the attached excel file for the new multi-step income statement that shows Alvear Corp.'s Operating Income for the year ended 12/31/2015 after correcting the mistakes.

In the attached excel file, Alvear Corp.'s Operating Income for the year ended 12/31/2015 after correcting the mistakes is $0 (see red color).

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