Dupke Discount Office Supply Stores had sales of $12 million in 2007. Its cost of goods sold was $9 million, and it had selling, general, and administrative expenses of $1.1 million. The
Firm paid $100,000 in interest expense and $50,000 in dividends to its shareholders. For
Simplicity, assume a flat tax rate of 40%. Dupke's net income for 2007 was

Question

Quizplus · Accepted Answer

Net income = Sales - Cost of goods sold - Selling, general, and administrative expenses - Interest expense - Dividends
Net income = $12 million - $9 million - $1.1 million - $100,000 - $50,000
Net income = $1.75 million
Applying the flat tax rate of 40%, we get:
Net income after taxes = $1.75 million x (1-0.4)
Net income after taxes = $1.05 million
Therefore, the correct choice is B, with a net income of $1.05 million after taxes. Net income can be calculated as follows:
Revenue - Cost of goods sold - Selling, general, and administrative expenses - Interest expense - Dividend expense = Earnings before taxes (EBT)
$12 million - $9 million - $1.1 million - $100,000 - $50,000 = $1.75 million (EBT)
Applying the flat tax rate of 40%:
$1.75 million x 0.40 = $0.70 million
Finally, subtracting the tax expense from EBT:
$1.75 million - $0.70 million = $1.05 million
Therefore, Dupke's net income for 2007 was $1.08 million (rounded to the nearest hundred thousand).

Dupke Discount Office Supply Stores Had Sales of $12 Million