You are given the following information for Bowie Pizza Co.: Sales - $80,000; Costs = $33.900:...

Question

Question

You are given the following information for Bowie Pizza Co.: Sales - $80,000; Costs = $33.900: Addition to retained earnings

Answer 1

Answer #1

In order to calculate depreciation expense we will have to do backward working of net income

Net income	Addition to retained earnings + Dividend paid
Net income	7300+2460
Net income	9760

Earnings before taxes	Net income/(1-tax rate)
Earnings before taxes	9760/(1-0.21)
Earnings before taxes	12354.43

Earnings before interest and tax	Earnings before taxes + Interest
Earnings before interest and tax	12354.43+6000
Earnings before interest and tax	18354.43

Earnings before interest and tax	Sales - Cost - Depreciation
18354.43038	80000-33900-Depreciation
18354.43038	46100-Depreciation
Depreciation	$27,745.57

Thus, depreciation expense is $27,745.57

Answer 2

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