Question

During 2014, Raines Umbrella Corp. had sales of $980,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $675,000, $85,000, and $190,000, respectively. In addition, the company had an interest expense of $51,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)What is the Operating cash flow?

Answer 1

Answer:

The operating cash flow for the company is $160,000

Explanation:

First we need to find the net income for the company. Sales were 980,000 and we will subtract costs from this to find the net income.

Net income = Sale-(Costs of good sold+administrative expenses+ depreciation expenses)

Net income= 980,000-(675,000+85,000+190,000)= 30,000

Now we need to find how much tax the company paid

Tax= tax rate* net income

Tax = 0.30*30,000=9,000

Now in order to find the operating cash flow we will start from net income, add depreciation expense to it because depreciation expense is a non cash expense and then subtract interest expense and tax expense from it.

Operating Cash flow = Net income+depreciation expense-interest expense-tax expense.

Operating cash flow = 30,000+190,000-51,000-9,000= 160,000