Answer:
Depreciation Expense = $8,974
Explanation:
Ted's Dread Co.
Income Statement
Sales $68,500
Less: Costs $51,700
<em>(4)</em>Gross Profit $16,800
<em>(5)</em>Less: Depreciation Expense $8,974
<em>(3)</em>Income Before Interest and Taxes $7,826
Less: Interest Expense $2,130
<em>(1)</em>Income before Taxes $5,696
<em>(2)</em>Less: Tax $1,196
Net Income or Retained Earnings $4,500
1.
Income Before Taxes = Net Income / (1 - Effective Tax Rate)
Income Before Taxes = $4,500 / (1 - 0.21)
Income Before Taxes = $4,500 / 0.79
Income Before Taxes = $5,696
2.
Tax = Income Before Taxes x Effective Tax Rate
Tax = $5,696 x 21%
Tax = $1,196
3.
Income Before Interest and Taxes = Interest Expense + Income before Taxes
Income Before Interest and Taxes = $2,130 + $5,696
Income Before Interest and Taxes = $7,826
4.
Gross Profit = Sales - Costs
Gross Profit = $68,500 - $51,700
Gross Profit = $16,800
5.
Gross Profit - Depreciation Expense = Income Before Interest and Taxes
or
Depreciation Expense = Gross Profit - Income Before Interest and Taxes
Depreciation Expense = $16,800 - $7,826
Depreciation = $8,974
