Question

During 2010, Raines Umbrella Corp. had sales of $900,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $575,000, $125,000, and $145,000, respectively. In addition, the company had an interest expense of $70,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) net income? and operating cash flow?

Answer 1

Answer:

1. Net loss 2010 $15,000

2. Operating cash flow $200,000

Explanation:

1. Net income or loss 2010.

Sales = $900,000

Less cost of goods sold = $575,000

Gross profit = $325,000

Less administrative and selling expense = $125,000

Earnings before interest , tax and depreciation = $200,000

Less depreciation = $145,000

Earnings before interest and tax (EBIT) = $55,000

Less interest expense = $70,000

Earning before tax (EBT) = ($15,000)

Less tax = ($0) since the company is having negative EBT or loss hence no tax.

Net loss $15,000

2. Operating cash flow

= EBIT + depreciation - tax

Where ;

EBIT = Earnings before interest and tax

= $55,000 + $145,000 - ($0)

= $200,000