INCOME STATEMENT Little Books Inc. recently reported $3 million of net income. Its EBIT was $6 million, and its tax rate was 40%. What was its interest expense? [Hint: Write out the headings for an income statement and fill in the known values. Then divide $3 million of net income by (1 - T) = 0.6 to find the pretax income. The difference between EBIT and taxable income must be the interest expense. Use this same procedure to complete similar problems.]

Question

contestada

Respuesta :

facundobuzzetti facundobuzzetti · Answer 1 · 2019-09-13T01:33:24+02:00

Answer:

Interest= $1000000

Explanation:

The general structure of an income statement proceeds as follow:

Revenue/Sales (+)

Cost of Goods Sold (COGS) (-)

=Gross Profit

Marketing, Advertising, and Promotion Expenses (-)

General and Administrative (G&A) Expenses (-)

=EBITDA

Depreciation & Amortization Expense (-)

=Operating Income or EBIT

Interest (-)

Other Expenses (-)

=EBT (Pre-Tax Income)

Income Taxes (-)

=Net Income

In this exercise:

EBIT= $6000000

interest= ?

tax=? (0,40)

EBITDA=$3000000

interest= [EBITDA/(1-t)]-EBIT

interest=3000000/0,60-6000000=-$1000000

EBIT= 6million

Interest= 1million

Tax=2million (EBIT-interest)*0,40

Net income=3million