Question

During the year, the Senbet Discount Tire Company had gross sales of $1.15 million. The company’s cost of goods sold and selling expenses were $584,000 and $237,000, respectively. The company also had notes payable of $760,000. These notes carried an interest rate of 4 percent. Depreciation was $114,000. The tax rate was 24 percent. a. What was the company’s net income? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567.) b. What was the company’s operating cash flow? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567.)

Answer 1

Answer:

a.  $140,296

b. $284,696

Explanation:

a. The computation of the net income is shown below:

= Gross sales - cost of goods sold - depreciation - selling expense - interest expense - income tax expense

= 1,150,000 - $584,000 - $114,000 -  $237,000 - $30,400 - $44,304

= $140,296

The interest expense = Notes payable × interest rate

                                    = $760,000 × 4%

                                    = $30,400

And, the income tax expense = (Gross sales - cost of goods sold - depreciation - selling expense - interest expense) × income tax rate

= (1,150,000 - $584,000 - $114,000 -  $237,000 - $30,400) × 24%

= $184600 × 24%

= $44,304

b. The operating cash flow

= Net income + depreciation expense + interest expense

=$140,296 + $114,000 + $30,400

= $284,696