Question

Which of the following statements is false when a company sells inventory costing $200 for $1,100 cash and operating expenses are $200?

Net sales increases $900.

Stockholders’ equity increases by net income of $700

Cost of goods sold is $200.

Gross profit is $900.

Answer 1

Net sales increases $ 900 is false.

Explanation of the answer :-

Inventory costing $ 200, and no other direct expenses are given so,

cost of goods sold = $ 200 (True)

Gross profit = net sales - cost of goods sold

Gross profit = $1,100 - $ 200 = $ 900 (True)

Here, other income ( non operating income) and non operating expenses are not given in the question.

So here only, Net income = Gross profit - operating expenses

Net income = $ 900 - $ 200 =$ 700. (True)

Which increases stakeholders equity

Above explanation showed all the above statement from 2 to 4 serial number are true. But the first statement (no 1) i.e

Net sales increases $ 900 is false.

Because as per the question net sales amounted to $ 1,100. Which was made for cash. So net sales actually increases

$ 1,100 because there is no sales return.