Question

Income Statement You have been given the following information for Corky's Bedding Corp.: a. Net sales $11,250,000. b. Cost of goods sold $7,500,000. C. Other operating expenses = $250,000. d. Addition to retained earnings = $1,000,000. e. Dividends paid to preferred and common stockholders $495,000. f. Interest expense = $850,000. The firm's tax rate is 35 percent. Calculate the depreciation expense for Bedding Corp. (LG2-1) 2-21

Answer 1

Earnings after tax = Dividends paid to preferred and common stockholders + Addition to retained earnings = $495,000 + $1,000,000 = $1,495,000

Earnings before tax = Earnings after tax / ( 1 - Tax % ) = $1,495,000 / ( 1 - 35% ) = $2,300,000

Earnings before interest and tax (EBIT) = Earnings before tax + Interest expense = $2,300,000 + $850,000 = $3,150,000

Gross profit = Net sales - Cost of goods sold = $11,250,000 - $7,500,000 = $3,750,000

Gross profit - Total operating expenses = EBIT

$3,750,000 - Total operating expenses = $3,150,000

Total operating expenses = $3,750,000 - $3,150,000 = $600,000

Depreciation expenses = Total operating expenses - Other operating expenses = $600,000 - $250,000 = $350,000