During the year, Belyk Paving Co. had sales of $2,384,000. Cost of goods sold, a

Question

During the year, Belyk Paving Co. had sales of $2,384,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,441,000, $436,600, and $491,600, respectively. In addition, the company had an interest expense of $216,600 and a tax rate of 35 percent (ignore any tax loss carryback or carryforward provisions.). Belyk Paving Co. paid out $375,000 in cash dividends. Assume that net capital spending was zero, no new investments were made in net working capital, and no new stock was issued during the year.

Explanation / Answer

Income Statement Amount Sales $2,384,000 Less: cOst of Good sold 1441000 Gross Income $943,000 Less: Opearting Expenses Administrative & selling expenses 436600 Depreciation 491600 Income before taxes $14,800 Less: Incme Tax 35% $5,180.00 Net Income $9,620.00 Because of the assumption made that there is no change in working capital This means that all sales and expenses are on credit except depreciation Operating Cash Flow Net Income $9,620.00 Add: Depreciation 491600 Less: cash dividend 375000 Operating Cash Flow $126,220.00 Cash Dividend has two type of thoughts one consider it as a part of cash flow from operating activities as it is appropriation of profit and other think it is a part of financing activity So if cash dividend is assumed to be a part of financing activity than the operating cash flow will be Operating Cash Flow Net Income $9,620.00 Add: Depreciation 491600 Operating Cash Flow $501,220.00 New Long term Debt that can be added is Cash needed for dividend payment 375000 Less: Income available 14800 New Long term Debt is $360200

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