Alpaca Corporation had revenues of $200,000 in its first year of operations. The

Question

Alpaca Corporation had revenues of $200,000 in its first year of operations. They have not collected on $20,000 of their sales, and still owe $25,000 on $70,000 of merchandise they purchased. The company had no inventory on hand at the end of the year. The company paid $15,000 in salaries. Owners invested $20,000 in the business and $20,000 was borrowed on a five-year note. The company paid $2,000 in interest that was the amount owed for the year, and paid $6,000 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40%.

Compute the cash balance at the end of the first year for Alpaca Corporation.

Explanation / Answer

Statement Calculation of closing cash balance

Funds raise from owners $20000

Funds borrowed $20000

Collection from debtors ($200000-$20000) $180000

Less: Payment for merchandise $45000

Salaries paid $15000

Interest paid $2000

Insurance policy paid $6000

Income tax @40% $42000

Closing balance $110000

Working note: Calculation of tax paid

Sales 200000

Less: purchases 75000

salary 15000

interest 2000

insurance(6000*1/2) 3000

Income 105000

Tax@40% 42000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.