You are given the following information for Gandolfino Pizza Co.: sales = $48,000; costs = $22,400; addition to retained earnings = $6,250; dividends paid = $2,200; interest expense = $4,800; tax rate = 35 percent. Calculate the depreciation expense.

Depreciation Expense=$7800

Explanation:

Step 1:

Calculate Net Income:

Net Income=Retained Earnings + Dividends

Net Income=$6250+$2200

Net Income=$8450

Step 2:

Calculate earnings before tax:

Earnings before tax=Net Income / (1-Tax Rate)

Earnings before tax=$8450 / (1-0.35)

Earnings before tax=$13000

Step 3:

Depreciation Expense=Sales-Costs-Interest expense-Earnings before tax

Depreciation Expense=$48,000 - $22,400-$4,800-$13000

Depreciation Expense=$7800