INCOME STATEMENT Byron Books Inc. recently reported $14 million of net income. I

ID: 2809956 • Letter: I

Question

INCOME STATEMENT Byron Books Inc. recently reported $14 million of net income. Its EBIT was $26.6 million, and its tax rate was 30%, what was its interest expense? [Hint: write out the headings for an income statement, and then fill in the known values. Then divide $14 million of net income by (1 T) 0.7 to find the pretax income. The difference between EBIT and taxable income must be 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. Do not round intermediate calculations. Grade It Now Save & Continue

Explanation / Answer

Income statement

EBIT

26600000

- Interest Expense

earning before tax

-Tax expense

Net income

14,000,000

Know we need to find the values of interest expense and tax expense

We know that the tax rate is 30%, If Earning before tax was X, then tax expense must have been X* .3

EBT – Tax = Net income

X - .3X = 14,000,000

0.7X = 14,000,000

X = 14,000,000/0.7

X = 20,000,000

So tax expense is 6,000,000 and EBT is 20,000,000

EBIT – Interest expense = EBT

26,600,000 – Interest expense = 20,000,000

Interest expense = 26,600,000 – 20,000,000

= 6,600,000

Hope that helps