Multiple Choice
Which of the following statements about net income is correct?
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4. Merchandising Operations
Net Sales
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Which of the following terms refers to the income generated by selling an investment at a higher price than you paid for it?
A
Gross profit
B
Operating income
C
Net sales
D
Capital gain
Verified step by step guidance1
Understand the concept of 'Capital Gain': It refers to the profit earned when an investment is sold for a price higher than its purchase price. This is a key term in financial accounting and investing.
Differentiate 'Capital Gain' from other terms: Gross profit refers to the profit from sales minus the cost of goods sold, operating income is the profit from core business operations, and net sales is the revenue after deducting returns and allowances.
Recognize that 'Capital Gain' is specifically tied to investments, such as stocks, bonds, or real estate, and is not related to regular business operations or product sales.
Learn how 'Capital Gain' is calculated: Subtract the purchase price of the investment (known as the cost basis) from the selling price. If the result is positive, it is a capital gain.
Understand the importance of 'Capital Gain' in financial accounting: It impacts taxable income and is often categorized as short-term or long-term based on the holding period of the investment.
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