Question

You have been given the following information for Corky’s Bedding Corp.: a. Net sales = $11,150,000. b. Cost of goods sold = $7,700,000. c. Other operating expenses = $130,000. d. Addition to retained earnings = $1,050,000. e. Dividends paid to preferred and common stockholders = $315,000. f. Interest expense = $850,000. The firm’s tax rate is 35 percent. Calculate the depreciation expense for Corky’s Bedding Corp.

Answer 1

1. Net income = Addition to retained earnings $1,050,000 + Dividends paid to preferred and common stockholders $315,000

= 1365000

2. net income = EBT (1 - tax)

1365000 =  EBT * 0.65

EBT = 2100000

3. EBIT - Interest = EBT

  EBIT - 850000 = 2100000   

EBIT = $2950000

4. Gross profit = Net sale - cost of goods sold

= 11,150,000 -  7,700,000

= 3450000

5. EBIT = gross profit - depreciation - other operating expense

  $2950000 = 3450000 - depreciation - $130,000

  $2950000 = 3320000 - depreciation

depreciation = $370000

So , depreciation expense for Corky’s Bedding Corp. = $370000