Given the following information for OHara Marine Co calculat

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.)

Solution

Sales = $ 50000
Costs = $ 21400
Interest Expense = $ 5400
Addition to retained earnings = $ 8000
Dividend paid = $ 1100
tax rate = 35%

Net income = Addition to retained earnings + Dividend paid = 8000+1100=9100
now EBT = Net income/(1-tax rate) = 9100/(1-.35)= 14000

Tax paid = EBT*.35 = 14000*.35 = 4900

EBIT = Interest Expense + EBT
     = 5400 + 14000 = 19400
Hence , Depreciation = sales - costs - EBIT
                                       = 50000-21400-19400
                    = $ 9200