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The WorkHardNowEnjoyLater Company had Earnings before Interest and taxes (EBIT or "operating profit") of $300,000 and...

The WorkHardNowEnjoyLater Company had Earnings before Interest and taxes (EBIT or "operating profit") of $300,000 and net income of $200,000. If the tax rate is 21%, what was the interest expense for the year? Hint: Work upwards from net income, the "bottom line" of the income statement. Begin by writing out the bottom part of an income statement and fill in what is given. Show all work for full credit.

MUST SHOW ALL WORK

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Answer #1

The interest expense is computed as shown below:

The profit before tax is computed as follows:

= Net income / ( 1 - tax rate )

= $ 200,000 / ( 1 - 0.21 )

= $ 253,164.557

So the interest expense will be:

Earnings before interest and taxes - interest = Profit before tax

$ 300,000 - Interest = $ 253,164.557

Interest = $ 46,835.44 Approximately

Feel free to ask in case of any query relating to this question

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