Goodwin Enterprises had a gross profit of $2,500,000 for the year. Operating expenses and interest expense incurred

Goodwin Enterprises had a gross profit of $2,500,000 for the year. Operating expenses and interest expense incurred in that same year were $595,000 and $362,000, respectively. Goodwin had 200,000 shares of common stock and 180,000 shares of preferred stock outstanding. Management declared a $2.50 dividend per share on the common and a $1.50 dividend per share on the preferred. Securities purchased at a cost of $37,500 in a previous year were resold at a price of $50,500. Compute the taxable income and the resulting tax liability for Goodwin Enterprises for the year.

Use the following tax rates:

                 Income                   Tax rate

              $0-$50,000                     15%

        $50,001-$75,000                25%

       $75,001-$100,000               34%

      $100,001-$335,000              39%

           over $335,001                  34%

Answer: 

Gross profit                    $2,500,000

Operating expenses        (595,000)

Interest expense               (362,000)

Income before tax         $1,543,000

Add: Gain on sales              13,000

Taxable Income             $1,556,000

        Income          Marginal Tax Rate             Tax Liability

       $50,000       ×                 15%                                   $7,500

       $25,000       ×                 25%                                   $6,250

       $25,000       ×                 34%                                   $8,500

     $235,000       ×                 39%                                $91,650

  $1,221,000       ×                 34%                              $415,140

  $1,556,000                                                                $529,040

By design, the marginal and the average tax rates are the same, 34%, for corporate incomes between $335,000 and $10,000,000.

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's EBIT?

A) $15,552,000

B) $58,000,000

C) $5,110,000

D) $4,630,000

 On the income statement, sales revenue, minus cost of goods sold and operating expenses, equals which of the following?

A) Net profit

B) Retained earnings

C) Net income available to preferred shareholders

D) EBIT

Which of the following streams of income is not affected by how a firm is financed (whether with debt or equity)?

A) Net profit after tax but before dividends

B) Net working capital

C) Operating income

D) Income before tax

Which of the following is not included in computing EBT (earnings before taxes)?

A) Marketing expenses

B) Depreciation expense

C) Cost of goods sold

D) Dividends

Your firm has the following income statement items: sales of $50,250,000; income tax of $1,744,000; operating expenses of $10,115,000; cost of goods sold of $35,025,000; and interest expense of $750,000. What is the amount of the firm's gross profit?

A) $18,000,000

B) $15,225,000

C) $5,000,110

D) $6,632,000