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Last year, Johnson Mills had annual revenue of $37,800, cost of goods sold of $23,200, and administrative expenses of $6,300. The firm paid $700 in dividends and had a tax rate of 35 percent. The firm added $2,810 to retained earnings. The firm had no long-term debt. What was the depreciation expense?Group of answer choices$1,780$2,900$2,300$1,520$2,640

Question

Last year, Johnson Mills had annual revenue of 37,800,costofgoodssoldof37,800, cost of goods sold of 23,200, and administrative expenses of 6,300.Thefirmpaid6,300. The firm paid 700 in dividends and had a tax rate of 35 percent. The firm added 2,810toretainedearnings.Thefirmhadnolong−termdebt.Whatwasthedepreciationexpense?Groupofanswerchoices2,810 to retained earnings. The firm had no long-term debt. What was the depreciation expense?Group of answer choices1,7802,9002,9002,3001,5201,5202,640

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Solution

To find the depreciation expense, we first need to calculate the firm's net income.

Here's how:

  1. Start with the annual revenue: $37,800
  2. Subtract the cost of goods sold: 37,800−37,800 - 23,200 = $14,600
  3. Subtract administrative expenses: 14,600−14,600 - 6,300 = $8,300
  4. This is the firm's earnings before taxes (EBT).

Next, calculate the taxes:

  1. Multiply EBT by the tax rate: 8,300∗0.35=8,300 * 0.35 = 2,905

Then, calculate the net income:

  1. Subtract taxes from EBT: 8,300−8,300 - 2,905 = $5,395

The firm added 2,810toretainedearningsandpaid2,810 to retained earnings and paid 700 in dividends. This means the total net income was 2,810(retainedearnings)+2,810 (retained earnings) + 700 (dividends) = $3,510

The depreciation expense is the difference between the calculated net income and the net income from the dividends and retained earnings.

So, the depreciation expense is: 5,395(calculatednetincome)−5,395 (calculated net income) - 3,510 (net income from dividends and retained earnings) = $1,885

However, this exact amount is not in the provided answer choices. There might be a mistake in the question or the provided answer choices.

This problem has been solved

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