Question

how to solve for pretax income on an income statement?

Answer 1

Pretax income is known as earning before tax (EBT). It is calculated by deducting cost of goods sold, other operating expenses, depreciation etc. from the sales.

Pretax Income = Gross Profit - Depreciation - Interest Expenses + Interest Income

Example

• Gross revenue: $4,000,000
• Cost of Goods Sold (COGS): $280,000
• Employee wages and salaries: $43,000
• Repair and maintenance costs: $6,000
• General administrative expenses: $120,000
• Interest expenses: $28,500
• Depreciation and amortization: $65,000

The pretax income is calculated as:

Pretax Income = $4,000,000 – ($280,000 + $43,000 + $6,000 + $120,000 + $65,000 + $28,500)

Pretax Income = $3,457,500