Question

During the year, the Senbet Discount Tire Company had gross sales of $1.24 million. The company’s cost of goods sold and selling expenses were $593,000 and $246,000, respectively. The company also had notes payable of $850,000. These notes carried an interest rate of 5 percent. Depreciation was $123,000. The tax rate was 23 percent. a. What was the company’s net income? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567.) b. What was the company’s operating cash flow? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567.)

Answer 1

Answer:

Net income= $139,755

Operating cash flow= $346,835

Explanation:

Senbet discount tire company has a gross sale of $1.24 million

The cost of goods sold is $593,000

The selling expense is $246,000

The company has a note payable of $850,000 with an interest rate of 5%

Depreciation is $123,000

Tax rate is 23%

(a) Inorder to calculate the tax expense the first step is to find the interest

Interest= debt×interest rate

= $850,000×5/100

= 850,000×0.05

= 42,500

Therefore, the net income can be calculated as follows

= (sales-cost of goods sold-selling expense-depreciation-interest)(1-tax rate)

=( $593,000-$246,000-$123,000-42,500)(1-0.23)

= 181,500×0.77

= $139,755

(b) Inorder to calculate the operating cash flow the first step is to find the tax expense

Tax expense= (gross sales-cost of goods sold-selling expense-depreciation-interest)× tax

($1,240,000-$593,000-$246,000-$123,000-42,500)×0.23

= $235,500×0.23

= $54,165

Therefore, the operating cash flow can be calculated as follows

= gross sales-cost of goods sold-selling expense-depreciation-tax expense+depreciation

=$1,240,000-$593,000-$246,000-$123,000-$54,165+$123,000

= $346,835

Hence the net income is $139,755 and the operating cash flow is $346,835