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2 January, 07:29

Last year, Bad Tattoo Co. had additions to retained earnings of $5,205 on sales of $96,785. The company had costs of $76,545, dividends of $3,280, and interest expense of $2,440. If the tax rate was 35 percent, what the depreciation expense?

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  1. 2 January, 07:44
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    If the tax rate was 35 percent, the depreciation expense would be $4,746

    Explanation:

    Net income of Bad Tattoo Co. = Additions to retained earnings + dividends = $5,205 + $3,280 = $8,485

    Income before tax of Bad Tattoo Co. = Net income / (1-Tax rate) = $8,485 / (1-35%) = $13,054

    Income before tax = sales - costs - depreciation expense - interest expense

    Depreciation expense = sales - costs - interest expense - Income before tax = $96,785 - $76,545 - $2,440 - $13,054 = $4,746
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