Question

For the past year, Momsen Limited had sales of $44,042, interest expense of $2,918, cost of goods sold of $14,559, selling and administrative expense of $10,626, and depreciation of $4,675, If the tax rate was 21 percent, what was the company's net income? a)$7,885 b)$6,300 c)$11,264 d)$8,899 e)$14,229

Answer 1

To find the net income, subtract all expenses from sales to get earnings before taxes, then calculate the tax, and finally subtract it from earnings before taxes. The correct net income for Momsen Limited, after rounding, is $8,899. The correct answer is option d.

Step-by-step explanation:

To calculate the company's net income, we first need to determine its earnings before taxes. This is calculated by subtracting all expenses from sales, except for taxes. We subtract interest expense, cost of goods sold, selling and administrative expense, and depreciation from the sales figure:

• Sales: $44,042
• Interest Expense: $2,918
• Cost of Goods Sold: $14,559
• Selling and Administrative Expense: $10,626
• Depreciation: $4,675

Earnings before taxes are then calculated as:

Sales - Interest Expense - Cost of Goods Sold - Selling and Administrative Expense - Depreciation = Earnings before taxes

$44,042 - $2,918 - $14,559 - $10,626 - $4,675 = $11,264

Now, we calculate the tax by multiplying the earnings before taxes by the tax rate:

Net Income = Earnings before taxes - Taxes

$11,264 x 21% = $2,365.44

Finally, subtract the tax from the earnings before taxes to obtain the net income:

Net Income = $11,264 - $2,365.44 = $8,898.56 (rounded to $8,899)

Therefore, the correct option is d) $8,899.