Problem 3-2 Income Statement Little Books Inc. recently reported $6 million of n
ID: 2612909 • Letter: P
Question
Problem 3-2
Income Statement
Little Books Inc. recently reported $6 million of net income. Its EBIT was $13.8 million, and its tax rate was 40%. What was its interest expense? [Hint: Write out the headings for an income statement and then fill in the known values. Then divide $6 million net income by (1 - T) = 0.6 to find the pretax income. The difference between EBIT and taxable income must be the interest expense. Use this same procedure to complete similar Problems.] Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest dollar, if necessary.
Problem 3-2
Income Statement
Little Books Inc. recently reported $6 million of net income. Its EBIT was $13.8 million, and its tax rate was 40%. What was its interest expense? [Hint: Write out the headings for an income statement and then fill in the known values. Then divide $6 million net income by (1 - T) = 0.6 to find the pretax income. The difference between EBIT and taxable income must be the interest expense. Use this same procedure to complete similar Problems.] Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest dollar, if necessary.
Explanation / Answer
Calculation of interest :
EBIT
$ 13,800,000
Less: Interest = EBIT-EBT = (13800000-10000000)
$ 3,800,000
EBT = Tax + Net Income = (4000000+6000000)
$ 10,000,000
Less: Tax =Net Income *40/(100-40) = 6000000*40/(100-40)
$ 4,000,000
Net income
$ 6,000,000
Calculation of interest :
EBIT
$ 13,800,000
Less: Interest = EBIT-EBT = (13800000-10000000)
$ 3,800,000
EBT = Tax + Net Income = (4000000+6000000)
$ 10,000,000
Less: Tax =Net Income *40/(100-40) = 6000000*40/(100-40)
$ 4,000,000
Net income
$ 6,000,000
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