Fraser Corporation has announced that its net income for the year ended June 30, 2011, was...

Question:

Fraser Corporation has announced that its net income for the year ended June 30, 2011, was $1,353,412. The company had EBITDA of $4,618,479, and its depreciation and amortization expense was equal to $1,338,033. The company's tax rate is 34 percent. What was its interest expense? (Round answer to 2 decimal places.)

Income Statement:

The income statement is a part of the final accounts and calculates the net profit or loss earned by the entity. The income statement can be presented as single-step, the variable cost, absorption, multi-step format and shows expenses and revenues in different categories

Answer and Explanation:

The interest expense is calculated as under

  • The EBITDA is $4,618,479
  • The depreciation and amortization expense was equal is $1,338,033

The earnings before interest and income tax will be calculated

EBIT = EBITDA - depreciation and amortization
=$4,618,479 - $1,338,033
= $3,280,443

  • The earnings before interest and income tax is $3,280,443
  • The net income is $1,353,412
  • The income tax rate is 34% on earnings before tax

The earnings before income tax = net income / (1- tax rate)
= $1,353,412 / (1-0.34)
=$ 1,353,412 / 0.66
=$2,050,624.24

  • The earnings before income tax is $2,050,624.24

The interest expense is calculated below

Interest expense = earnings before interest and income tax - earnings before income tax
= $3,280,443 - $2,050,624.24
=$1,229,818.76

The interest expense is $1,229,818.76


Learn more about this topic:

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How to Make an Income Statement: Example & Analysis

from Accounting 201: Intermediate Accounting I

Chapter 5 / Lesson 6
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