Question

During the year, Belyk Paving Co. had sales of $2,396,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,429,000, $435,400, and $490,400, respectively. In addition, the company had an interest expense of $215,400 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.)b. What is it's operating cash flow?

Answer 1

Answer:

a) $-174,200  b) $531,600

Explanation:

This information can only be correctly disclosed through an income statement as shown below.

                  Belyk Paving Co

                 Income Statement

                 For the period---

                                                                          $

Sales                                              2,396,000

Less: Cost of Goods Sold               1,429,000

Gross Margin                                          967,000

Less expenses:  

Depreciation                                                (490,400)

Selling and administrative expenses        (435,400)

                    EBIT                                    41,200

Less: Interest Expenses                  (215,400)

EBT                                                          (174,200)

Less: 30% tax                                                0   --  ( Note 1)

Net loss                                                (174,200)

a) Net Loss                                          $ 174,200

b) Operating Cash Flow= EBIT- Taxes + Depreciation

                                = 41,200  - 0 + 490,400

                                 = $531,600

Note 1: No tax is paid when EBT is negative