Question

You have been given the following information for Gunther's Coffee Shop: Net Sales = $220,000; Gross profit = $90,000; Addition to retained earnings = $28,000; Dividends paid to stockholders = $6,000; Depreciation expense = $24,000; The firm's tax rate is 34 percent. What are the cost of goods sold and the interest expense for Gunther's Coffee Shop?

CHOICES

$130,000 and $14,485 respectively

$130,000 and $34,000 respectively

$140,000 and $20,000 respectively

$180,000 and $34,000 respectively

$180,000 and $14,485 respectively

Answer 1

Hi

Net Sales = $220,000

Gross Profit = $90,000

Cost of Goods Sold = Net Sales - Gross Profit

=220,000 - 90,000

=$130,000

Net Income = Addition to retained earning + Dividends

=28000 + 6000

=$34,000

tax = 34%

Profit before tax = Net Income/(1-tax rate)

=34000/(1-0.34)

=$51,515.15

EBIT = Gross Profit - Depreciation

EBIT = 90000 - 24000

=$66,000

Interest = EBIT - Profit before tax

=660000 - 51515.15

=$14,484.85 or $14,485

Hence first option is correct here.

Thanks