Final answer:
To calculate the depreciation for The Pizza Joint, we utilize the provided financial information to reverse-engineer the retained earnings after accounting for sales, costs, dividends, interest, and taxes.
Step-by-step explanation:
The student's question pertains to determining the amount of depreciation for The Pizza Joint (PJ) based on given financial data: sales, costs, dividends, interest paid, the addition to retained earnings, and the tax rate. To find the depreciation, we must start with the accounting equation for net income, which is: Net Income = Revenues - Expenses. In this scenario, we're specifically interested in the expenses part of the equation, which includes costs of goods sold, depreciation, interest, and taxes.
Firstly, we must calculate PJ's net income before taxes, which is the sales minus the costs of goods sold and depreciation. We then subtract the interest paid to find the taxable income. Applying the tax rate to the taxable income gives us the income after taxes, and after we add back the interest and depreciation, we can finally solve for the company's depreciation by analyzing how much was added to retained earnings and also subtracting dividends paid.
Here's how the calculation would proceed:
- Sales: $93,600
- Costs: $74,400
- Interest Paid: $1,400
- Dividends: $2,500
- Added to Retained Earnings (RE): $4,100
- Tax Rate: 34%
Since the final retained earnings increased by $4,100, after dividends, the net income minus dividends should be equal to this increase. With the given tax rate, we need to work backward applying taxes and then interest to find the earnings before interest, taxes, depreciation, and amortization (EBITDA), then we subtract costs from sales to find the depreciation. The actual calculation involves several steps, with the end goal being isolating the depreciation figure.
In summary, the amount of depreciation can be found by using the company's financial data and working through the net income equation, considering taxes and other expenses.