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Doss [256]
3 years ago
9

The owner of a bicycle repair shop forecasts revenues of $240,000 a year. Variable costs will be $70,000, and rental costs for t

he shop are $50,000 a year. Depreciation on the repair tools will be $30,000.Required:a. Calculate operating cash flow for the year by using all three methods: 1. Adjusted accounting profits2. Cash inflow/cash outflow analysis3. The depreciation tax shield approach.b. Are the above answers equal?
Business
1 answer:
Sergeu [11.5K]3 years ago
4 0

Answer:

1. Adjusted Accounting Profits

- This method gives cashflow by adjusting revenue for expenses.

Earnings before tax

= Revenue - variable cost - rent cost - depreciation

= 240,000 - 70,000 - 50,000 - 30,000

= $90,000

Earnings After tax

= 90,000 ( 1 - tax rate)

= 90,000 ( 1 - 30%)

= $63,000

Add back depreciation as it is a non-cash expense

Operating cashflow = 63,000 + 30,000

= $93,000

2. Cash inflow/cash outflow analysis

Cash outflow is removed from inflow.

= Cash inflow - outflow

= 240,000 - variable cost - rent cost - tax

= 240,000 - 70,000 - 50,000 - 27,000

= $93,000

Tax = Earnings before tax * 30%

= 90,000 * 30%

= $27,000

3. The depreciation tax shield approach.

The tax shield that depreciation affords is added to the earnings after tax.

= Revenue - variable cost - rent cost

= 240,000 - 70,000 - 50,000

= $120,000

After tax = 120,000 * ( 1 - 30%)

= $84,000

Depreciation tax shield = depreciation * tax

= 30,000 * 30%

= $9,000

Cashflow = 84,000 + 9,000

= $93,000

4. Are the above answers equal?

Yes they are. All give an operating cash-flow of $93,000.

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miss Akunina [59]

Explanation:

The journal entries are shown below:

1. Cash A/c Dr $14,200

          To Gain on land A/c $2,840

          To Land $11,360

(Being the land is sold)

2. Cash A/c Dr $18,900

            To Common stock A/c $18,900

(Being the common stock is issued for cash)

3. Depreciation Expense A/c Dr $15,730

             To Accumulated Depreciation - Buildings A/c $15,730

(Being depreciation expense is recorded)

4. Salaries expense A/c Dr $8,080

                 To Cash A/c $8,080

(Being the salaries expense is paid for cash)

5. Equipment A/c Dr $8,420

              To Common stock A/c $1,170

              To Additional paid-in capital in excess of par value A/c $7,250

(Being the equipment is purchased)

6. Cash A/c Dr $1,236

Accumulated depreciation - Equipment A/c Dr $7,210

Loss on sale of equipment A/c Dr $1,854

                   To Equipment A/c $10,300

(Being the equipment is sold)

7 0
3 years ago
Partners Dennis and Lilly have decided to liquidate their business. The following information is available:
fgiga [73]

Answer:

Partners Dennis and Lilly have decided to liquidate their business. The following information is available:

Cash $100,000 Accounts Payable $100,000

Inventory $200,000 Dennis, Capital $120,000

Lilly, Capital $80,000

$300,000 $300,000

Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable is paid. During the second month, the rest of the inventory is sold for $45,000, and the remaining accounts payable are paid. Cash is distributed at the end of each month, and the liquidation is completed at the end of the second month.

1. Using a safe payments schedule, how much cash will be distributed to Dennis at the end of the first month?

a. $36,000

b. $64,000

c. $60,000

d. $24,000

2. Using a safe payments schedule, how much cash will be distributed to Lilly at the end of the first month?

a. $40,000

b. $24,000

c. $64,000

d. $16,000

4 0
2 years ago
According to recent data, only 36 percent of Uber's current employees are women. How do you think this situation helped perpetua
kozerog [31]

Answer and Explanation:

If we considered the business type that uber begins i.e. lack of the skilled and the experienced professionals. So here we can conclude that with the 36 pf the present employees of the uber that contains women perpetuates with a flawed corporate culture

So as per the given situation, the above represent the explanation and the same should be considered

4 0
2 years ago
Leaf Lovers Garden Centers is a chain of discount gardening stores throughout the United States. Top management realizes that am
zaharov [31]

Answer:

Decentralised

Explanation:

Leaf lover's garden is an organisation which has given their regional managers the authority to make decisions on the behalf of the company. Any organisation which provides their mid-level and low-level managers the authority to make decisions is known as decentralised organisations. This type of organisational structure is different from the centralised organisation, where most of the decisions are made by top managers and CEOs.

7 0
3 years ago
On January 2, 2015, Moser, Inc., purchased equipment for $100,000. The equipment was expected to have a $10,000 salvage value at
OLEGan [10]

Answer:

a. Debit Depreciation expense $6,400

   Credit Accumulated depreciation $6,400

b. $33,600

Explanation:

Depreciation is the systematic allocation of cost to an asset. It is given as

Depreciation =  (Cost - salvage value)/estimated life

When accumulated over time, it is known as accumulated depreciation which is deducted from the cost to get the carrying amount of the asset.

Depreciation

= (100000 - 10000)/6

=$15,000

Between 2015 and start of 2019 is 4 years hence

accumulated depreciation at start of 2019

= $15,000 × 4

= $60,000

Net book value  = $100,000 - $60,000

= $40,000

If the asset life is to be extended by 3 years, the remaining useful life changes from 2 to 5 years.

New depreciation rate

= (40,000 - 8000)/5

= $6,400

To record this for 2019,

Debit Depreciation expense $6,400

Credit Accumulated depreciation $6,400

The book value of the equipment at the end of 2019

= $40,000 -  $6,400

= $33,600

4 0
3 years ago
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