Income Statement You have been given the following information for Nicole's Neckties Corp.: net sales = $2,500,000;
Cost of goods sold = $1,300,000;
Addition to retained earnings = $30,000;
Dividends paid to preferred and common stockholders = $300,000;
Interest expense = $50,000.
The firm's tax rate is 40 percent. What is the depreciation expense for Nicole's Neckties Corp.?
A) $550,000
B) $600,000
C) $650,000
D) $820,000

Question

Quizplus · Accepted Answer

Using the formula for calculating net income:

Net Sales - Cost of Goods Sold - Depreciation Expense - Interest Expense - Taxes = Net Income

We can rearrange the formula to solve for Depreciation Expense:

Depreciation Expense = Net Sales - Cost of Goods Sold - Interest Expense - Taxes - Net Income

Plugging in the given values:

Depreciation Expense = $2,500,000 - $1,300,000 - $50,000 - (40% x ($2,500,000 - $30,000 - $300,000)) - $30,000

Depreciation Expense = $600,000

Therefore, the correct answer is B) $600,000.

Income Statement You Have Been Given the Following Information for Nicole's