Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

Earnings before interest (EBI) adjusts net income for which one of the following groups of items?

Adds back dividends and subtracts capital gains

Adds back interest expense and subtracts interest income

Adds back taxes and depreciation

Subtracts cost of goods sold and operating expenses

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Verified step by step guidance

Understand the concept of Earnings Before Interest (EBI): EBI is a measure of a company's profitability that excludes the effects of interest expenses and interest income. It focuses on the operating performance of the business.

Identify the adjustments made to net income to calculate EBI: EBI adds back interest expense because it is excluded from operating performance, and subtracts interest income because it is not part of core operations.

Review the incorrect options: Dividends and capital gains are not related to operating performance, so they are not adjusted in EBI. Similarly, taxes and depreciation are excluded from EBI calculations, as they are not directly tied to operating results.

Clarify why cost of goods sold and operating expenses are not subtracted: These items are already accounted for in net income, so they are not adjusted separately when calculating EBI.

Conclude that the correct adjustment group for EBI is: Adds back interest expense and subtracts interest income, as these adjustments isolate the operating performance of the business.