Company reported $9,000 of sales, $6,000 of operation costs other than depreciation, and $1,500 of depreciation. The company had no amortization charges and no non-operation income. It had issued $4,000 of bonds that carry a 7% interest rate, and its federal-plus-state income tax rate was 40%. What was the company's taxable income?
To determine the company's taxable income, we need to calculate its net income first. Here's how we can do that:
1. Start with the company's sales revenue: $9,000.
2. Subtract the operation costs other than depreciation: $6,000.
Net income = $9,000 - $6,000 = $3,000.
Now, we need to consider the effects of depreciation and interest expense on taxable income.
3. Add back the depreciation expense: $1,500.
Net income after depreciation = $3,000 + $1,500 = $4,500.
4. Deduct the interest expense on the bonds: $4,000 * 0.07 = $280.
Net income after interest expense = $4,500 - $280 = $4,220.
5. Finally, calculate the taxable income by multiplying the net income after interest expense by the tax rate of 40%:
Taxable income = $4,220 * 0.40 = $1,688.
Therefore, the company's taxable income is $1,688.