Brown Office Supplies recently reported $15,500 of sales, $8,250 of operating costs other than depreciation, and $1,750 of depreciation.

Brown Office Supplies recently reported $15,500 of sales, $8,250 of operating costs other than depreciation, and $1,750 of depreciation. It had $9,000 of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. How much was the firm's earnings before taxes (EBT)

Answers

Earnings Before Tax   =   $7,870

Explanation:

given data

sales = $15,500

operating costs = $8,250

depreciation = $1,750

bonds outstanding = $9,000

interest rate = 7%

federal-plus-state income tax rate = 40%

solution

foe Earnings Before Tax that is here we ignore tax rate so  

Earnings Before Tax   =  Revenue - Operating costs - depreciation - interest on bonds outstanding    1

put here value we get

Earnings Before Tax   =   $15,500 - $8,250 - $1,750 - ( 7% of $9,000 )

Earnings Before Tax   = $7,250  - $1,750 - $630

Earnings Before Tax   =   $7,870

$630

Explanation:

The computation of the firm's interest expense is

= Outstanding bonds × rate of interest

= $9,000 × 7%

= $630

For computing the interest expense, we multiplied the outstanding bond with the interest rate so that the accurate amount could come

This is the answer but the same is not provided in the given options          

The firm's earnings before taxes (EBT) was $4,870

Explanation:

                              Brown Office Supplies

                     Income statement for the year

                                                                     $

Sales                                                         15,500

Operating Cost                                        (8,250)      

Depreciation expense                             (1,750)

Operating Earning                                    5,500      

Interest expense ( 9000 x 7% )               (630)                                            

Earning before Tax                                   4,870    

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