Question

Given the following information for O’Hara Marine Co., calculate the depreciation expense: sales = $41,000; costs = $26,400; addition to retained earnings = $4,900; dividends paid = $1,570; interest expense = $1,840; tax rate = 35 percent.

Answer 1

It can be determined using the format of income statement and we have to do opposite calculation

Addition to the retained earnings + Dividend paid Net profit after ta:x 4,900'00 1,570'00 6,470'00 3,483'85 Tax paid @ 35% ( ie. 6470 / (1-35%)) * 35% Net profit before taxes Interest Expense Earning before interest and tax 9,953'85 1,840'00 11,793'85 41,000'00 26,400'00 14,600'00 Sales less: costs Gross profit Depreciaiton Gross profit - Earnings before interest and tax Depreciation 14600 11793'85 Depreciation $ 2806'15