Question

Given the following information for O'Hara Marine Co., calculate the depreciation expense: sales = $50,000; costs = $21,400; addition to retained earnings = $8,000; dividends paid = $1,100; interest expense = $5,400; tax rate = 35 percent. (Do not round intermediate calculations and round your final answer to nearest whole dollar amount.)

Answer 1

$9,200

Explanation:

Data provided in the question:

Sales = $50,000

Costs = $21,400

Interest Expense = $5400

Addition to retained earnings = $8,000

Dividend paid = $1,100

Tax rate = 35%

Now,

Net income = Addition to retained earnings + Dividend paid

= $8,000 + $1,100

= $9,100

EBT = Net income ÷ (1-tax rate)

= $9,100 ÷ (1 - 0.35)

= $14,000

Tax paid = EBT × 0.35

= $14,000 × 0.35

= $4,900

EBIT = Interest Expense + EBT

= $5,400 + $14,000

= $19,400

Now,

Depreciation = Sales - costs - EBIT

= $50,000 - $21,400 - $19,400

= $9,200