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Accounting: Determination of Interest expense.

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Problem 1: 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.

Problem 2: State of Stockholders' Equity - Computer World Inc. paid out $22.5 million in total common dividends and reported $278.9 million of retained earnings at year-end. The prior year's retained earnings were $212.3 million. What was the net income? Assume that all dividends declared were actually paid.

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Solution Summary

The problem set deals with determining the interest expense from provided information.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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