Question

# ou have been given the following information for Moore’s HoneyBee Corp.: Net sales = \$38,000,000. Gross...

ou have been given the following information for Moore’s HoneyBee Corp.:

1. Net sales = \$38,000,000.

2. Gross profit = \$18,800,000.

3. Other operating expenses = \$2,800,000.

4. Addition to retained earnings = \$4,800,000.

5. Dividends paid to preferred and common stockholders = \$2,800,000.

6. Depreciation expense = \$2,890,000.

The firm’s tax rate is 36 percent.

Calculate the cost of goods sold and the interest expense for Moore’s HoneyBee Corp.

1. Computation of Cost of Goods Sold

Cost of Goods Sold = Net Sales - Gross Profit

Cost of Goods Sold = 38000000 - 18800000

Cost of Goods Sold = \$19200000

2. Computation of Interest Expense

(Gross Profit - Depreciation - Other operating Expenses - Interest Expense) * (1 - Tax) = Addition to retained earnings + Dividends Paid

(18800000 - 2890000 - 2800000 - Interest Expenses) * (1 - 36%) = 2800000 + 4800000

13110000 - Interest Expense = 7600000 / 0.64

Interest Expense = 13110000 - 11875000

Interest Expense = \$1235000