You have been given the following information for Moore s HoneyBee Corp.:
1. Net sales = $44,000,000.
2. Gross profit = $19,400,000.
3. Other operating expenses = $3,400,000.
4. Addition to retained earnings = $8,328,000.
5. Dividends paid to preferred and common stockholders = $2,100,000.
6. Depreciation expense = 52,000,000.
The firm's tax rate is 21 percent. The firm's interest expense is alt tax-deductible.
Calculate the cost of goods sold and the interest expense for Moore's HoneyBee Corp.
Income Statement refers to the statement prepared to highlight the revenues generated and the expenses paid for a particular accounting period. It includes all the expenses and is prepared on an accrual basis.
Answer and Explanation:
Earnings before Interest and Tax
= Gross Profit - Other operating expenses - Depreciation
= $19,400,000.00 - $3,400,000.00 - $52,000,000.00
Also net income
= Addition to retained earnings + Dividends paid
= $8,328,000.00 + $2,100,000.00
Earnings before tax
= Net Income / (100 - Tax Rate)
= 10,428,000 / 79%
It is not possible that the Earnings before Interest and Tax is negative and Earnings before tax is positive as interest paid cannot be in negative.
So, Either the sales data is incorrect or the depreciation data.
In the given case, Interest
= EBIT - EBT
= -$36,000,000.00 - $13,200,000.00
Cost of goods sold
= Sales - Gross profit
= $44,000,000 - $19,400,000.00
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from Accounting 101: Financial AccountingChapter 2 / Lesson 2