Question

During the year, the Senbet Discount Tire Company had gross sales of $865,000. The firm’s cost of goods sold and selling expenses were $455,000 and $210,000, respectively. The company also had notes payable of $680,000. These notes carried an interest rate of 4 percent. Depreciation was $105,000. The tax rate was 21 percent.
1. What was the company’s net income?2. What was the company’s operating cash flow?

Answer 1

Answer:Net Income =  $68,730  ; Operating cash flow=$181,730

Explanation:

Gross sales                        $865,000

Less:

Cost of good sold               $455,000

 selling Expenses                 $210,000

Total                                     $200,000

Interest on notes  $200,00 X 4% = 8,000

Depreciation                         $105,000

EBT                                          $87,000

 (  $865,000-    $455,000-    $210,000- $8,000 - $105,000  )          

less tax at  21%                             $18,270

(87,000 x 0.21)

Net Income                                 $68,730 

(87,000 - 18,270)

b) Operating cash flow = Net income + depreciation + interest

                                $68,730 + $105,000 +   $8,000     =$181,730