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3 October, 19:09

You are given the following information for Sookie's Cookies Co.: sales = $51,200; costs = $39,600; addition to retained earnings = $2,320; dividends paid = $935; interest expense = $1,560; tax rate = 40 percent. Calculate the depreciation expense for the company.

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  1. 3 October, 19:28
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    The depreciation expense for the company is $4615.

    Explanation:

    profit before depreciation and tax = (sales - cost) - interest expense

    = ($51,200 - $39,600) - $1,560

    = $10040

    Addition to retained earnings = $2,320

    dividends paid = $935

    tax rate = 40 percent.

    Addition to retained earnings = [ (Profit before depreciation and tax - depreciation expense) * (1 - Tax) ] - dividend paid

    $2320 = [ ($10040 - depreciation expense) * (1 - 0.40) ] - 935

    $3255 = ($10040 - depreciation expense) * 0.60

    $5425 = $10040 - depreciation expense

    Depreciation expense = 10040 - 5425

    = $4615

    Therefore, The depreciation expense for the company is $4615.
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