Jonstone Nurseries, Inc., incurred depreciation expenses of $31,300 last year. The sales were...

Question:

Jonstone Nurseries, Inc., incurred depreciation expenses of $31,300 last year. The sales were $212,000 and the addition to retained earnings was $18,405. The firm paid interest of $5,100 and dividends of $7,500. The tax rate is 34%. What is the amount of the costs incurred by the firm for last year?

Income Statement:

An income statement is a financial statement that determines the financial performance of the firm for a given fiscal period. The main purpose of the income statement is to list out the necessary expenses that were needed to generate revenue and also list the sales revenue and other income. The net income is the excess of the revenues over the costs and expenses.

Answer and Explanation:


Answer: Jonstone Nurseries, Inc's costs incurred for the last year is $136,350.

Explanation:

Jonstone Nurseries, Inc. has the following data:

  • Depreciation expense = $31,300
  • Sales = $212,000
  • Addition to retained earnings = $18,405
  • Interest expense = $5,100
  • Dividends = $7,500
  • Tax rate = 34%

Computation:

The first step is to determine the net income:

  • Net income = Additions to retained earnings + Dividends paid
  • Net income = $18,405 + $7,500
  • Net income = $25,905

The second step is to determine the earnings before taxes (EBT):

  • EBT = Net income / (1 - Tax rate)
  • EBT = $25,905 / (1 - 0.34)
  • EBT = $39,250

The third step is to determine the earnings before interest and taxes (EBIT):

  • EBIT = EBT + Interest expense
  • EBIT = $39,250 + $5,100
  • EBIT = $44,350

The third step is to determine the earnings before interest, taxes, depreciation and amortization (EBITDA):

  • EBITDA = EBIT + Depreciation expense
  • EBITDA = $44,350 + $31,300
  • EBITDA = $75,650

The final step is to determine the total costs:

  • EBITDA = Sales - Costs
  • Costs = $212,000 - $75,650
  • Costs = $136,350

Learn more about this topic:

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What Is an Income Statement? - Purpose, Components & Format

from Accounting 101: Financial Accounting

Chapter 2 / Lesson 2
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