Suppose a firm has the following values represented in it's 2018 and 2019 Balance Sheets and...

Suppose a firm has the following values represented in it's 2018 and 2019 Balance Sheets and Income Statements:

Item	2018	2019
Cash	$9,396	$8,579
Inventory	$8,160	$8,953
Accounts Receivable	$7,654	$7,751
Sales Revenue	$178,423	$175,589
Depreciation Expense	$7,849	$5,692
Accounts Payable	$6,574	$7,076
Wages Payable	$6,381	$7,397
Interest Paid	$7,443	$5,017
Taxes Paid	$7,443	$5,017
Paid in capital: Common	$100,000	$100,000
Bank Loans	$88,755	$84,523
Equipment	$81,085	$87,120
Buildings	$169,801	$173,420
Paid in capital: Preferred	$30,000	$30,000
Dividends Paid	$4,002	$4,073
COGS	$53,069	$53,415
Administrative and Sales Expense	$43,017	$43,516
Rent and Lease Expense	$27,264	$24,904

What is the value of the firm's taxable income (pre-tax income) for 2018?

In need of answer and Step by step instructions

Expert Solution

		2018	2019
Sales Revenue	$	1,78,423	1,75,589
Less: COGS		53,069	53,415
Gross Profit		1,25,354	1,22,174
less:Administrative and Sales Expense		43,017	43,516
Less: Rent and Lease Expense		27,264	24,904
Less :Depreciation		7,849	5,692
Earnings before Interest and Taxes (EBIT)	47,224	48,062
Less : Interest Paid		7,443	5,017
Earnings before Taxes		39,781	43,045

Formula Used :
Gross Profit = Sales Revenue - COGS
Gross Profit = $ 178,423 -$ 53,069 = $ 125,354

EBIT = Gross Profit - Adiministrataive and sales expense - rent and Lease Expense - Depreciation
EBIT = $ 125,354 - 43,017-27,264-7,849 = $ 47,224

Taxable Income or Earnings before taxes = EBIT - Interest expense
Taxable Income or Earnings before taxes = $ 47,224 - $ 7,443
Taxable Income or Earnings before taxes = $ 39,781

firm's pre tax income for 2018 is $ 39,781

jeff jeffy answered 2 years ago

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