Question

Andre's Bakery has sales of $487,000 with costs of $263,000. Interest expense is $26,000, and depreciation is $42,000. The tax rate is 21 percent. What is the net income?

Answer 1

Andre's Bakery's net income is calculated by subtracting costs, interest expense, and depreciation from sales, and then subtracting taxes from the earnings before taxes. The result is a net income of $123,240.

Step-by-step explanation:

To calculate the net income for Andre's Bakery, we start with sales and subtract the explicit costs such as costs of goods sold (COGS), interest expense, and depreciation. Then, we calculate the tax on the earnings before taxes and subtract it to find the net income. Here's the breakdown of the calculation:

• Sales: $487,000
• Costs: $263,000
• Interest Expense: $26,000
• Depreciation: $42,000
• Tax Rate: 21%

We start by subtracting the explicit costs from the total sales to find the earnings before interest and taxes (EBIT):

EBIT = Sales - Costs - Depreciation = $487,000 - $263,000 - $42,000 = $182,000

Next, we subtract the interest expense from EBIT to find the earnings before taxes (EBT):

EBT = EBIT - Interest Expense = $182,000 - $26,000 = $156,000

Finally, we calculate the taxes owed and subtract from the EBT:

Taxes = EBT * Tax Rate = $156,000 * 0.21 = $32,760

Net Income is the EBT minus Taxes:

Net Income = EBT - Taxes = $156,000 - $32,760 = $123,240