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 $50,000 (Net Sales - Gross Profit = $150,000 - $100,000). To find the interest expense, calculate the net income before taxes and interest: $20,000 (addition to retained earnings) + $8,000 (dividends) = $28,000. Add back taxes: $28,000 / (1 - 0.30) = $40,000. Add back depreciation: $40,000 + $50,000 = $90,000. Subtract gross profit: $100,000 - $90,000 = $10,000 interest expense.

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