You have been given the following information for Romeo's Rockers Corp.: Net sales = $5,200,000; Cost of goods sold = $2,100,000; Addition to retained earnings = $1,000,000; Dividends paid to preferred and common stockholders = $400,000; Interest expense = $200,000. The firm's tax rate is 30 percent. What is the depreciation expense for Romeo's Rockers Corp.?
A) $900,000
B) $1,100,000
C) $1,500,000
D) $1,600,000

Question

Quizplus · Accepted Answer

Depreciation expense is not explicitly given, but it can be calculated using the following formula:Net income = Net sales - Cost of goods sold - Depreciation expense - Interest expense - TaxesWe know that net income is $1,000,000, net sales are $5,200,000, cost of goods sold is $2,100,000, interest expense is $200,000, and the tax rate is 30%. So, we can solve for depreciation expense as follows:$1,000,000 = $5,200,000 - $2,100,000 - Depreciation expense - $200,000 - ($5,200,000 - $2,100,000 - Depreciation expense - $200,000) * 0.30Solving for depreciation expense, we get:Depreciation expense = $900,000

You Have Been Given the Following Information for Romeo's Rockers