Question

# You have been given the following information for Gunther's Coffee Shop: Net Sales = \$220,000; Gross...

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

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