You have been given the following information for Corky's Bedding Corp.: Net sales = $15,250,000; Cost of goods sold = $5,750,000; Addition to retained earnings = $4,000,000; Dividends paid to preferred and common stockholders = $995,000; Interest expense = $1,150,000.The firm's tax rate is 30 percent.Calculate the depreciation expense for Corky's Bedding Corp.
A) $1,970,842.88
B) $1,214,285.71
C) $1,521,989.23
D) $1,663,139.36

Question

Quizplus · Accepted Answer

Step 1: NI = Dividends + Addition to RE = 40,000,000.00 + 995,000 = $4,995,000.
Step 2: NI = EBT (1 - tax rate) => EBT = NI/(1 - tax rate) = $4,995,000/(1 - 0.30) = $7,135,714.29.
Step 3: EBIT - Interest = EBT => EBIT = $7,135,714.29 + $1,150,000 = $8,285,714.29.
Step 4: Gross profits = Net sales - COGS = $15,250,000 - $5,750,000 = $9,500,000.
Step 5: Gross profits - Depreciation = EBIT => Depreciation = $9,500,000 - $8,285,714.29 = $1,214,285.71.

You Have Been Given the Following Information for Corky's Bedding