Question

(Working with the income? statement) At the end of its third year of? operations, the Sandifer Manufacturing Co. had $ 4 comma 577 comma 000$4,577,000 in?revenues, $ 3 comma 301 comma 000$3,301,000 in cost of goods? sold, $ 444 comma 000$444,000 in operating expenses which included depreciation expense of $ 146 comma 000$146,000?, and a tax liability equal to 3434 percent of the? firm's taxable income. What is the net income of the firm for the? year?

Answer 1

As per the information provided in the Question,

Deyails for Sandifer Manufacturing Co. at the end of its third year of? operations are :-

1. Revenue = $4,577,000

2.Cost of Goods Sold = $3,301,000

3.Operating Expense (including deprecation of $146,000) = $444,000

Hence, Operating Expense excluding Depreciation = $298,000

4. Tax liability is 34.34% of the firms taxable income .

Alternative 1- It has been assumed that Tax liability is not included in operating expense of $444,000

Taxable Income of the Firm:-

Revenue-C.O.G.S.-Operating expense(Including Depreciation)=  $4,577,000 - $3,301,000 -  $444,000

=  $832,000

Tax liability = 34.34% of $832,000 = $285,709

So, Income after Tax i.e Net Income = $546,291

Alternative 2- Tax liability is included in operating expense of $444,000

Let Net income before Tax be "x"

Therefore Tax Liability = 0.3434x

Operating Expense excluding tax expense = ($444,000-0.3434x)

Income before tax expense= $4,577,000 - $3,301,000 - ($444,000-0.3434x)

i.e. x = $832,000+ 0.3434x

x= 832,000/0.6566

=$1,267,134

So Tax Expense = 34.34% of $1,267,134 = $435,134

Net Income After Tax = $832,000