Question

Given the following information for O'Hara Marine Co., calculate the depreciation expense: sales = $38,000; costs = $21,000; addition to retained earnings = $5,000; dividends paid = $1,500; interest expense = $5,000; tax rate = 35 percent.

Calculate the depreciation expense. (Do not round intermediate calculations.) Depreciation expense $

Answer 1

Depreciation expense $2,000

Step-by-step explanation:

Sales less cost less depreciation less interest less tax = retained earnings plus dividend paid

sales = $38,000

Costs = $21,000

addition to retained earnings = $5,000

dividends paid = $1,500

interest expense = $5,000

tax rate = 35 percent.

Let the depreciation be d

38000 - 21000 - 5000 - d - 0.35(38000 - 21000 - 5000 - d) = 5000 + 1500

0.65(38000 - 21000 - 5000 - d) = 6500

38000 - 21000 - 5000 - d = 10000

d = 38000 - 21000 - 5000 - 10000

d = 2000

Depreciation expense $2,000.