Question

A company reports the following amounts at the end of the current year:

Sales revenue $ 860,000

Selling expenses 250,000

Gain on the sale of land 30,000

Interest expense 10,000

Cost of goods sold 520,000

Under 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

Answer:

$80

Explanation:

Permanent earnings are regular or constant earning, which can be expected to continue in the future. It is income earned from everyday business transactions. Permanent earnings contrast transitory earning.

Transitory are non- recurring earnings. It is not definite that they will continue in the future.

For this company, transitory transactions will be gain on the sale of land  at $30,000

Permanent earnings will be sales revenues minus expenses

=$860,000 -$250,000-$10,000- $520,000

=$860,000- $780

=$80