Last year Bad Tattoo Co had additions to retained earnings o

Last year, Bad Tattoo Co. had additions to retained earnings of $4,780 on sales of $95,560. The company had costs of $75,720, dividends of $2,980, and interest expense of $2,040. If the tax rate was 34 percent, what the depreciation expense?

$6,439

$13,285

$7,390

$7,760

$6,042

$6,042

Working:

Depreciation is the difference between gross profit and operating profit (EBIT)

Step-1:Calculation of gross profit

	Sales				$ 95,560
	Cost of goods sold			$ -75,720

	Gross Profit			$ 19,840

Step-2:Calculation Operating profit(EBIT)

	Addition to retained earning			$ 4,780
	dividend					$ 2,980

	Net Income				$ 7,760
	/(1-0.34)
	Profit before tax				$ 11,758
	Interest expense				$ 2,040
	Earning before interest and taxes		$ 13,798

Step-3:Calculation of depreciation expense

	Gross Profit			$ 19,840
	Earning before interest and taxes	$ -13,798

	Depreciation Expense		$ 6,042

Last year, Bad Tattoo Co. had additions to retained earnings of $4,780 on sales of $95,560. The company had costs of $75,720, dividends of $2,980, and interest

Last year Bad Tattoo Co had additions to retained earnings o

Solution

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