Question

The Johnson Materials Inc. has an EBIT of $3,500,000. Its Times Interest Earned (TIE) ratio is 5, Profit Margin is 16% and the tax rate is 35%. Costs of Goods Sold (COGS) is $6 million. Develop an income statement by filling in the blanks in the following table:

Sales = _________
COGS = 6000000
EBITDA =
Depreciation & amortization=
EBIT= 3500000
Interest Expense =
EBT =
Tax =
Net Income =

Answer 1

Answer and Explanation:

The computation of missing amounts is shown below:-

As we know that

Times Interest Earned Ratio = EBIT ÷ Interest Expense

So it can be write as

Interest Expense = EBIT ÷ Times Interest Earned Ratio

= $3,500,000 ÷ 5

= $700,000

Now

EBT is

= EBIT - Interest Expense

= $3,500,000 - $700,000

= $2,800,000

Now

Tax = 35% of EBT

= 0.35 × $2,800,000

= $980,000

After that

Net Income is

= Earning Before Tax - Tax

= $2,800,000 - 980,000

= $1,820,000

Also,

Profit Margin = Net Income ÷ Sales

So it can be written as

Sales = Net Income ÷ Profit Margin

= $1,820,000 ÷ 16%

= $11,375,000

And,

EBITDA = Sales - Cost of Goods Sold

= $11,375,000 - $6,000,000

= $5,375,000

Now

EBIT = EBITDA - Depreciation & Amortization

So, it can be written as

Depreciation & Amortization = EBITDA - EBIT

= $5,375,000 - $3,500,000

= $1,875,000