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Serggg [28]
3 years ago
8

The owner of a bicycle repair shop forecasts revenues of $212,000 a year. Variable costs will be $63,000, and rental costs for t

he shop are $43,000 a year. Depreciation on the repair tools will be $23,000. a. Prepare an income statement for the shop based on these estimates. The tax rate is 20%. b. Calculate the operating cash flow for the repair shop using the three methods given below: Now calculate the operating cash flow. Dollars in minus dollars out. Adjusted accounting profits. Add back depreciation tax shield.
Business
1 answer:
Nataly [62]3 years ago
7 0

Answer:

Sales Revenue            212,000

Variable Cost               (63,000)

Rent Expense               (43,000)

Depreciation Expense (23,000)

Income before taxes     83,000

Income tax expense <u>    (16,600)   </u>

Net Income                    84,800

Cash from operating activities 107,800

tax-shield from depreciation 4,600

Explanation:

Cash flow from operations (indirect method)

net income 84,800 + depreciation expense = 107,800

The depreciation provides a tax shield as they are an accounting concept. The depreciation expense did not involve the outflow of cash but, it is a taxable deduction therefore generates a tax-shield.

23,000 x 20% = 4,600

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