INCOME STATEMENT Byron Books Inc. recently reported $3 million of net income. It
ID: 1172584 • Letter: I
Question
INCOME STATEMENT
Byron Books Inc. recently reported $3 million of net income. Its EBIT was $5.4 million, and its tax rate was 40%. What was its interest expense? [Hint: Write out the headings for an income statement, and then 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 interest expense. Use this same procedure to complete similar problems.] Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest dollar, if necessary. Do not round intermediate calculations.
Explanation / Answer
Earnings before interest and taxes(EBIT) 5.4million Less:interest expense(5.4-5) $0.4million=$400,000 Earnings before taxes(EBT)(100%)(3/0.6) $5million Less:taxes@40%($5million*40%) ($2million) Net income(60%) $3million