Income Statement You have been given the following information for Kaye's Krumpet Corp.:
Net sales = $150,000;
Gross profit = $100,000;
Addition to retained earnings = $20,000;
Dividends paid to preferred and common stockholders = $8,000;
Depreciation expense = $50,000.
The firm's tax rate is 30 percent.What are the cost of goods sold and the interest expense for Kaye's Krumpet Corp.?
A)$10,000, and $50,000, respectively
B)$50,000, and $10,000, respectively
C)$50,000, and $22,000, respectively
D)$62,000, and $10,000, respectively

Question

Quizplus · Accepted Answer

The cost of goods sold is calculated as Net Sales - Gross Profit = $150,000 - $100,000 = $50,000. To find the interest expense, we calculate the net income before taxes: Net Income = Addition to Retained Earnings + Dividends = $20,000 + $8,000 = $28,000. The net income before taxes is $28,000 / (1 - 0.30) = $40,000. The operating income is Gross Profit - Depreciation = $100,000 - $50,000 = $50,000. Therefore, Interest Expense = Operating Income - Net Income Before Taxes = $50,000 - $40,000 = $10,000.

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