Frederickson Office Supplies recently reported $10,000 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%. How much was the firm's taxable income, or earnings before taxes (EBT) ?

Select the correct answer.

a. $1,200 b. $1,000 c. $900 d. $1,300

Question

Tiki

Business

5 March, 18:17

Frederickson Office Supplies recently reported $10,000 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 25%. How much was the firm's taxable income, or earnings before taxes (EBT) ?

Select the correct answer.

a. $1,200 b. $1,000 c. $900 d. $1,300

+3

Answers (1)

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Keon Hoover · Answer 1

c. $900

Explanation:

The computation of the earnings before taxes (EBT) is shown below:

= Sales - operating costs other than depreciation - depreciation expense - outstanding bonds * interest rate

= $10,000 - $7,250 - $1,250 - $8,000 * 7.5%

= $10,000 - $7,250 - $1,250 - $600

= $900

We ignored the state income tax rate of 25% and the rest of the items would be taken for the computation part