Last year, Bad Tattoo Co. had additions to retained earnings of $5,205 on sales of $96,785. The company had costs of $76,545, dividends of $3,280, and interest expense of $2,440. If the tax rate was 35 percent, what the depreciation expense?

If the tax rate was 35 percent, the depreciation expense would be $4,746

Explanation:

Net income of Bad Tattoo Co. = Additions to retained earnings + dividends = $5,205 + $3,280 = $8,485

Income before tax of Bad Tattoo Co. = Net income/(1-Tax rate) = $8,485/(1-35%) = $13,054

Income before tax = sales - costs - depreciation expense - interest expense

Depreciation expense = sales - costs - interest expense - Income before tax = $96,785 - $76,545 - $2,440 - $13,054 = $4,746