Income statement Q

CFA Level I
#1

Pinto Corporation is an automobile manufacturer located in North America. Pinto owns a 5 percent interest in one of its suppliers, Continental Supply Company. Each year, Pinto receives a cash dividend from Continental. Pinto’s engine supplier, National Supply Company, recently increased prices on goods sold to all customers due to higher labor costs. Should Pinto report the dividends received from Continental and the price increase from National as an operating or nonoperating component on its year-end income statement? Dividends received - Price increase A) Nonoperating Nonoperating B) Nonoperating Operating C) Operating Operating D) Operating Nonoperating

#2

dividend received - non-operating --> will be part of Other income. price increase - operating

#3

thanks cpk123, good call i guess my confusion came from the fact that this was an income statement question and i had the cash flows definition of “operating” in my head (i chose operating operating) the answer is B) Nonoperating Operating Since Pinto is a nonfinancial firm, dividends received would be considered a nonoperating component. An increase in cost of goods sold would be considered a part of normal operations.

#4

Good point guys, I went exactly as you sharpshooter. S

#5

Like you guys I have been to CF statement focused, cpk123 you cleared it up for me.

#6

ah i went for the cash flow too. this is the kind of question that i will feel 100% that i got right and it will be wrong for careless reading.