Question

. Brown Office Supplies recently reported $18,500 of sales, $8,250 of operating costs other than depreciation, and $1,750 of depreciation. It had $9,000 of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's earnings before taxes (EBT)?(A) $5,981(B) $7,398(C) $7,870(D) $5,903(E) $6,217

Answer 1

Option (C) is correct.

Step-by-step explanation:

EBT means Earnings Before Tax, so you ignore the tax rate for this problem.

Then solve for the EBT figure.

EBT:

= Revenue - Operating costs - Depreciation - interest

= $18,500 - $8,250 - $1,750 - ($9,000 x 7%)

= $18,500 - $8,250 - $1,750 - $630

= $7,870

Therefore, $7,870 was the firm's earnings before taxes (EBT).