The Ace Book Company sold 1,500 finance textbooks for $ 185 each to High Tuition
ID: 2442711 • Letter: T
Question
The Ace Book Company sold 1,500 finance textbooks for $ 185 each to High Tuition University in 2008. These books cost Ace $145 to produce. Ace spent $10,000(selling expense) to convince the university to buy its books. In addition, Ace borrowed $80,000 on January 1, 2008, on which the company paid 10-percent interest. Both interest and principal on the loan were paid on December 31, 2008. Ace’s tax rate is 25 percent. Depreciation expense for the year was $15,000.Did Ace Book Company make a profit in 2008? Please verify with an income statement presented in good form.
Explanation / Answer
Ace Book Company
Sales (1,500 books at $185 each) $277,500
Cost of goods sold (1,500 books at $145 each) $217,500
Gross Profit $60,000
Selling expense $10,000
Depreciation expense $15,000 $25,000
Operating profit $35,000
Interest expense $8,000
Earnings before taxes $27,000
Taxes @ 25% $6,750
Earnings after taxes $20,250
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