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The following entries appear on the annual income statement for Blue Ribbon Catering Ltd.Sales $890,000Cost of goods sold -$355,300Wages -$350,000Depreciation -15,000Interest expenses -$10,000What is Blue Ribbon's profit after tax, if its tax rate is 30%?Group of answer choices$111,790$133,790$118,790$126,790None of the other answers is correct

Question

The following entries appear on the annual income statement for Blue Ribbon Catering Ltd.Sales 890,000Costofgoodssold−890,000Cost of goods sold -355,300Wages -350,000Depreciation−15,000Interestexpenses−350,000Depreciation -15,000Interest expenses -10,000What is Blue Ribbon's profit after tax, if its tax rate is 30%?Group of answer choices111,790111,790133,790118,790118,790126,790None of the other answers is correct

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Solution

To calculate the profit after tax, we first need to calculate the operating income (also known as EBIT - Earnings Before Interest and Taxes), then subtract the interest expenses to get the taxable income, and finally subtract the taxes.

Step 1: Calculate Operating Income (EBIT) Operating Income = Sales - Cost of Goods Sold - Wages - Depreciation Operating Income = 890,000−890,000 - 355,300 - 350,000−350,000 - 15,000 = $169,700

Step 2: Calculate Taxable Income Taxable Income = Operating Income - Interest Expenses Taxable Income = 169,700−169,700 - 10,000 = $159,700

Step 3: Calculate Taxes Taxes = Taxable Income * Tax Rate Taxes = 159,700∗30159,700 * 30% = 47,910

Step 4: Calculate Profit After Tax Profit After Tax = Taxable Income - Taxes Profit After Tax = 159,700−159,700 - 47,910 = $111,790

So, the profit after tax for Blue Ribbon Catering Ltd. is 111,790.Therefore,thecorrectansweris111,790. Therefore, the correct answer is 111,790.

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