You are given the following information for Calvani Pizza Co.: sales = $50,000;

Question

You are given the following information for Calvani Pizza Co.: sales = $50,000; costs = $22,600; addition to retained earnings = $7,150; dividends paid = $2,600; interest expense = $5,000; tax rate = 35 percent. Calculate the depreciation expense.

Depreciation expense?

You are given the following information for Calvani Pizza Co.: sales = $50,000; costs = $22,600; addition to retained earnings = $7,150; dividends paid = $2,600; interest expense = $5,000; tax rate = 35 percent. Calculate the depreciation expense.

Depreciation expense?

Explanation / Answer

Explanation:

Net income = Dividends + Addition to retained earnings

= $2,600 + 7,150

= $9,750

Now, looking at the income statement:

EBT ? EBT * Tax rate = Net income

EBT * Tax rate is simply the calculation for taxes.

Solving for EBT :

EBT = NI / (1 ? Tax rate)

= $9,750 / (1 ? 0.35)

= $15,000

EBIT = EBT + Interest

= $15,000 + 5,000

= $20,000

therefore

EBIT = Sales ? Costs ? Depreciation

$20,000 = $50,000 ? 22,600 ? Depreciation

depreciation = $7,400

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