Question

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.

Answer 1

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