During the year, Belyk Paving Co. had sales of $2.386,000. Cost of goods sold, a

Question

During the year, Belyk Paving Co. had sales of $2.386,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,439,000, $436,400, and $491,400, respectively In addition, the company had an interest expense of $216,400 and a tax rate of 30 percent. (Ignore any tax loss carryback or carryforward provisions) a. What is the company's net income? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g.. 32) Net income s b. What is its operating cash flow? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g.. 32.) Operating cash flow $ eBook & Resources eBook 2.4 Cash Flow

Explanation / Answer

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a Income Statement   Sales $     2,386,000   Cost of goods sold         1,439,000   Administrative and Selling expenses           436,400   Depreciation           491,400   EBIT             19,200   Interest           216,400   Taxable income          (197,200)   Taxes (30%)                    -     Net income $       (197,200) The taxes are zero since we are ignoring any carryback or carryforward provisions. b The operating cash flow for the year was: OCF = EBIT + Depreciation – Taxes OCF = $19,200 + 491,400 – 0 OCF = $510,600 Net income was negative because of the tax deductibility of depreciation and interest expense. However, the actual cash flow from operations was positive because depreciation is a non-cash expense and interest is a financing, not an operating, expense.

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