Use the table for the question(s)below.
Pro Forma Income Statement for Ideko,2005-2010
-The after-tax interest expense (in 000's)in 2008 is closest to:
A)$2380.
B)$4420.
C)$6800.
D)$7820.

Question

Use the table for the question(s)below.
Pro Forma Income Statement for Ideko,2005-2010  
-The after-tax interest expense (in 000's)in 2008 is closest to:
A)$2380. 
B)$4420. 
C)$6800. 
D)$7820.

Quizplus · Accepted Answer

We need to calculate the after-tax interest expense for 2008. Looking at the table, we see that the interest expense for 2008 is $6700. To calculate the after-tax interest expense, we need to subtract the tax benefit from the interest expense. 
Tax Benefit = Interest Expense * Tax Rate
Tax Benefit = $6700 * 0.34
Tax Benefit = $2278
After-Tax Interest Expense = Interest Expense - Tax Benefit
After-Tax Interest Expense = $6700 - $2278
After-Tax Interest Expense = $4422 (rounded to nearest thousand)
Therefore, the answer is B.

Use the Table for the Question(s)below