Part 2 ABC Company Income Statement For the Period Ending December 31, 20XX Revenues $ 525,000 Cost of sales 200,000 Gross profit s 325,000 Operating expenses Salaries Lease for office Advertising and promotion Utilies Property taxes Payroll taxes Insurance Depreciation Miscellaneous expenses Total operating expenses 100,000 30,000 24,000 12,750 18,000 11,500 8,000 20,000 9.000 233,250 $ Operating income S 91,750 $ Interest income Interest expense Net interest expense 250 15.000 14.750 5 Net income $ 77,000 Answer the questions below and explain your answer with numbers, computations, or a sentence or two. 1. Explain the term cost of sales in your own words. Is likely that the balance sheet of this company includes inventory? 2. Gross profit (margin) is a key piece of financial information. Why is it so important? 3. Explain operating expenses? What does the term mean? 4. Does ABC Company have any employees? Explain. 5. There is an error in the income statement Property taxes are overstated by S10,000. How is the income statement affected by a correction of property taxes? 6. What happens to net income if the company hires a new manager at a salary of $80,000? 7. Does the company own any equipment? Is it informative to also check the balance sheet to answer this question? Explain. 8. Does the company have debt? How much debt? Explain how the income statement and balance sheet provide answers to the questions? 9. How do we know that ABC Company is using the accrual basis of accounting? Hint: Do not forget to look at the balance sheet from the prior module. 10. What happens to income statement at the end of the period? Is it continuous or does it close (terminate)