Question

During the year, The Dalton Firm had sales of $3,210,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $2,540,000, $389,000, and $112,000, respectively. In addition, the company had an interest expense of $118,000 and a tax rate of 34 percent. (Ignore any tax loss carryback or carryforward provisions.) What is its operating cash flow?

Answer 1

Answer: $263,660

Explanation:

Given that,

Sales = $3,210,000

Cost of goods sold = $2,540,000

Administrative and selling expenses = $389,000

Depreciation expenses = $112,000

Interest expense = $118,000

Tax rate = 34 percent

EBIT = Sales - Cost of goods sold - administrative and selling expenses - Depreciation

        = $3,210,000 - $2,540,000 -  $389,000 - $112,000

        = $169,000

EBT = EBIT - Interest

       = $169,000 - $118,000

       = $51,000

Net Income = EBT - 34% Income tax

                    = $51,000 - 34% × $51,000

                    = $51,000 - $17,340

                    = $33,660

Operating cash flow = Sales - Cost of goods sold - Administrating expense - 34% Income tax

                                  =  $3,210,000 - $2,540,000 - $389,000 - $17,340

                                  = $263,660