Problem:

Frederickson Office Supplies recently reported $12,500 of sales, $7,250 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a 7.5% interest rate, and its federal-plus-state income tax rate was 40%.

Required:

Question 1: How much was the firm's taxable income, or earnings before taxes (EBT)?

Explain in detail and show all work.