A firm's financial statements showed sales of 400,000 net income of 50,000 operating expense of 80,000...

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Finance

A firm's financial statements showed sales of 400,000 net incomeof 50,000 operating expense of 80,000 accounts payable of 160,000and a cost of goods sold of 200,000. If the company's tax rate is28% and the only missing expense is interest, what is the company'sinterest expense?

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3.7 Ratings (675 Votes)

Step-1:Calculation of earning before tax

Earning before tax	=	Net Income / (1-Tax rate)
	=	50000/(1-0.28)
	=	$ 69,444.44

Step-2:Calculation of earning before interest and taxes

Sales		$ 4,00,000
Less cost of goods sold		$ 2,00,000
Gross Profit		$ 2,00,000
Less operating expense		$ 80,000
Earning before interest and taxes		$ 1,20,000

Note:
Accounts payable is current liability that is shown in balance sheet , not in income statement.

Step-3:Calculation of interest expense

Interest Expense	=	Earning before interest and Taxes	-	Earning Before Taxes
	=	$ 1,20,000	-	$ 69,444.44
	=	$ 50,555.56

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A firm's financial statements showed sales of 400,000 net incomeof 50,000 operating expense of 80,000 accounts payable of 160,000and a cost of goods sold of 200,000. If the company's tax rate is28% and the only missing expense is interest, what is the company'sinterest expense?

A firm's financial statements showed sales of 400,000 net income of 50,000 operating expense of 80,000...

Free

70.2K

Verified Solution

Question

Finance

A firm's financial statements showed sales of 400,000 net incomeof 50,000 operating expense of 80,000 accounts payable of 160,000and a cost of goods sold of 200,000. If the company's tax rate is28% and the only missing expense is interest, what is the company'sinterest expense?

Answer & Explanation Solved by verified expert

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