Question

During the year, Belyk Paving Co. had sales of $2,393,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,432,000, $435,700, and $490,700, respectively. In addition, the company had an interest expense of $215,700 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) a. What is the company’s net income? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Net income $ b. What is it's operating cash flow? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) Operating cash flow

Answer 1

Answer:

(a) ($181,100)

(b) $525,300

Explanation:

Given that,

Sales = $2,393,000

Cost of goods sold = $1,432,000

Administrative and selling expenses = $435,700

Depreciation expense = $490,700

Interest expense = $215,700

Tax rate = 35 percent

(a) Gross profit:

= Sales - Cost of goods sold

= $2,393,000 - $1,432,000

= $961,000

EBIT:

= Gross profit - Administrative and selling expenses - Depreciation expense

= $961,000 - $435,700 - $490,700

= $34,600

Income Before Income Tax (EBT):

= EBIT - Interest expense

= $34,600 - $215,700

= ($181,100)

Net Income:

= Income Before Income Tax (EBT) - Taxes

= ($181,100) - $0

= ($181,100)

Note: The company does not have any profit during the year, so no tax.

(b) Operating cash flow:

= Sales - Cost of goods sold - Administrative and selling expenses

= $2,393,000 - $1,432,000 - $435,700

= $525,300