Leon Division had interest expense of $94,400.Its income tax rate was 32%.Leon Division generated net income totaling $784,400.With $2,400,000 of assets invested in Leon Division, for how much profit is the Leon Division manager responsible?
A)$631,192
B)$819,608
C)$848,592
D)$725,208

Question

Quizplus · Accepted Answer

The profit for which the Leon Division manager is responsible can be calculated by adding back the interest expense to the net income and then adjusting for the tax effect. The calculation is as follows: Net income = $784,400 Interest expense (before tax) = $94,400 To find the profit before tax, add the interest expense back to the net income: $784,400 + $94,400 = $878,800 This is the profit before tax. Since the interest expense is tax-deductible, we need to adjust this profit by the tax effect of the interest expense to find the profit for which the manager is responsible. The tax saved due to the interest expense = $94,400 * 32% = $30,208 Therefore, the profit for which the manager is responsible = $878,800 + $30,208 = $909,008 However, none of the provided options match this calculation, indicating a possible misunderstanding in the calculation process or an error in the provided options. Given the context and the usual approach to such problems, the closest match or intended calculation might have been different, focusing on the net income and interest adjustment without the explicit tax saving calculation on the interest, which could lead to a different interpretation of the correct answer.

Leon Division Had Interest Expense of $94,400