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

Which of the following items are subtracted from net sales when determining earnings available to common shareholders?

Preferred dividends and income tax expense

Sales returns and allowances

Cost of goods sold and operating expenses

Accounts receivable and inventory

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Verified step by step guidance

Understand the concept of 'earnings available to common shareholders': This refers to the amount of profit left after deducting all expenses, taxes, and preferred dividends from net sales. It is the portion of earnings that is available for distribution to common shareholders.

Identify the components that are subtracted from net sales: Net sales is the revenue generated after accounting for sales returns and allowances. From this, various expenses are subtracted to calculate earnings available to common shareholders.

Preferred dividends: These are payments made to preferred shareholders before any earnings are distributed to common shareholders. Subtract preferred dividends from net sales as part of the calculation.

Income tax expense: Taxes owed by the company are subtracted from net sales to determine the earnings available to shareholders. This is a mandatory deduction.

Sales returns and allowances: These are reductions in revenue due to returned goods or allowances granted to customers. They are subtracted from gross sales to arrive at net sales, which is the starting point for calculating earnings available to common shareholders.