Calculate net income given the following information: tax rate = 30%; accounts receivable = $15,000; receivable turnover = 6 times; inventory = $4,000; inventory turnover = 6.25 times; operating expenses = $15,000; interest expense = $9,000.
A) $29,700
B) $28,700
C) $27,700
D) $26,700
E) $25,700

Question

Quizplus · Accepted Answer

First, calculate sales and cost of goods sold (COGS) using turnover ratios. Receivable turnover = Sales / Accounts Receivable, so Sales = Receivable Turnover * Accounts Receivable = 6 * $15,000 = $90,000. Inventory Turnover = COGS / Inventory, so COGS = Inventory Turnover * Inventory = 6.25 * $4,000 = $25,000. Gross profit = Sales - COGS = $90,000 - $25,000 = $65,000. Earnings before interest and taxes (EBIT) = Gross Profit - Operating Expenses = $65,000 - $15,000 = $50,000. Earnings before taxes (EBT) = EBIT - Interest Expense = $50,000 - $9,000 = $41,000. Net income = EBT * (1 - Tax Rate) = $41,000 * (1 - 0.30) = $41,000 * 0.70 = $28,700.

Calculate Net Income Given the Following Information: Tax Rate =