If you sell inventory on credit for $10mm with a cost basis of $5mm, what is the net income impact after tax (20% rate)?

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Multiple Choice

If you sell inventory on credit for $10mm with a cost basis of $5mm, what is the net income impact after tax (20% rate)?

Explanation:
Understanding after-tax net income from a sale on credit comes from gross profit and applying the tax rate. The sale brings in 10 million in revenue and the cost of the goods sold is 5 million, so the gross profit is 5 million. With a 20% tax rate, tax on that income is 1 million, leaving 4 million of after-tax net income from this transaction. In formula terms: (Revenue − Cost) × (1 − tax rate) = (10 − 5) × 0.8 = 4 million. The fact that the sale is on credit doesn’t change this net income calculation; it affects accounts receivable and cash flow timing, not the after-tax profit from the sale.

Understanding after-tax net income from a sale on credit comes from gross profit and applying the tax rate. The sale brings in 10 million in revenue and the cost of the goods sold is 5 million, so the gross profit is 5 million. With a 20% tax rate, tax on that income is 1 million, leaving 4 million of after-tax net income from this transaction. In formula terms: (Revenue − Cost) × (1 − tax rate) = (10 − 5) × 0.8 = 4 million. The fact that the sale is on credit doesn’t change this net income calculation; it affects accounts receivable and cash flow timing, not the after-tax profit from the sale.

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