Question

Smashed Pumpkins Company paid $224 in dividends and $645 in interest over the past year. The company increased retained earnings by $540 and had accounts payable of $726. Sales for the year were $16,650 and depreciation was $764. The tax rate was 21 percent. What was the company's EBIT?

Answer 1

The Earnings Before Interest and Taxes (EBIT) for the Smashed Pumpkins Company can be calculated using the following formula:

EBIT = Sales - Cost of Goods Sold - Depreciation

Step-by-step explanation:

To find the Earnings Before Interest and Taxes (EBIT) for Smashed Pumpkins Company, we utilize the formula:

EBIT = Sales - Cost of Goods Sold - Depreciation

Given:

- Sales for the year = $16,650

- Depreciation = $764

However, the information provided doesn't explicitly mention the Cost of Goods Sold (COGS). To determine the COGS, further details or information related to operating expenses, cost structure, or additional financial data would be needed. The EBIT formula subtracts the Cost of Goods Sold and Depreciation from Sales to calculate operating profit before accounting for interest and taxes. Unfortunately, the exact value for COGS is missing in the provided data.

Therefore, without the specific value for the Cost of Goods Sold, it isn't possible to directly calculate the EBIT. The formula depends on this missing figure to compute the operating profit accurately. If the COGS were provided, we could deduct it along with depreciation from the sales to find the EBIT.

In summary, while the formula to calculate EBIT is known, the absence of the Cost of Goods Sold prevents the direct calculation of EBIT with the available information. Without this crucial piece of data, determining the precise EBIT value remains unfeasible.