Question

A firm’s income statement included the following data. The firm’s average tax rate was 20%.

         
Cost of goods sold   $   9,800
Income taxes paid   $   3,800
Administrative expenses   $   4,800
Interest expense   $   2,800
Depreciation   $   2,800

a. What was the firm’s net income?

b. What must have been the firm's revenues?

c. What was EBIT?

Answer 1

Preparation of income statement :

Sales. (A) = 39,200 (29,400+9,800)

Cost of goods sold. (B)   = 9,800

Gross profit (C) (A-B) = 29,400 (21,800+4,800+2,800)

Administrative expenses (D) = 4,800

Depreciation (E) = 2,800

EBIT (F) (C-D-E) = 21,800 (19,000+2,

800)

Interest expense (G) = 2,800

EBT (H) (F-G) =19,000 (15200+3800)

Tax @ 20% (I) = 3,800

Net income (80%) (J) (H-I) = 15,200 (Note 1)

Notes:

1) Given, tax paid @ 20%= 3,800

20% - 3,800

80% -?

= 3800*80%/20%

= 15,200

Net income = 15,200

a) Net income = 15,200

(Refer Note 1)

B) Revenue:

Revenue = cost of goods sold+Gross profit

= 9,800+29,400

= 39,200

C) EBIT:

EBIT = EBT+interest expense

= 19,000+2,800

= 21,800