Question

Consider the following abbreviated financial statements for Parrothead Enterprises: PARROTHEAD ENTERPRISES PARROTHEAD ENTERPRISES 2014 and 2015 Partial Balance Sheets 2015 Income Statement Assets Liabilities & Owners’ Equity Sales 12,991 2015 2014 2015 2014 Costs 5,843 Current assets 931 946 Current liabilities 375 493 Depreciation 1,034 Net fixed assets 3,712 4,297 Long-term debt 2,099 2,126 Interest 146 If the tax rate is 32 percent, what is the cash flow from assets for the year?

Answer 1

Answer:

The cash flow from assets for the year is $3,522

Explanation:

Computation of the cash flow from assets for 2019 is shown below:

= Operating cash flow - net capital spending - changes in working capital

where,

Operating cash flow = EBIT + depreciation - income tax expense

The EBIT = Sales - cost - depreciation expense

               = $12,991 - $5,843 - $1,034

               = $6,114

And, the income tax expense = (EBIT - Interest) × tax rate

                                                 = ($6,114 - $146) × 32%

                                                 = $1,909.76

So, the operating cash flow =  $6,114 + $1,034 -  $1,909.76

                                              = $5,238.24

Net capital capital = ending fixed assets - beginning fixed assets + depreciation

= $4,297  - $3,712 + $1,034

= $1,619

Changes in working capital = (ending balance of current assets - ending balance of current liabilities) - (beginning balance of current assets - beginning balance of current liabilities)

= ($946 - $493)  - ($931 - $375)  

=  $453 - $356

= $97

Now put these values to the above formula  

So, the value would equal to

= $5,238.24 - $1,619 - $97

= $3,522