Question

Building an Income Statement: During the year, the Senbet Discount Tire Company had gross sales of $865,000. The firm’s cost of goods sold and selling expenses were $455,000 and $210,000, respectively. The company also had notes payable of $680,000. These notes carried an interest rate of 4 percent. Depreciation was $105,000. The tax rate was 21 percent.

1. What was the company’s net income?
2. What was the company’s operating cash flow?

Answer 1

C A В 1 Item Amount $865,000.00 $455,000.00 $210,000.00 $105,000.00 $95,000.00 $27,200.00 $67,800.00 $14,238.00 $53,562.00 Sales 2 Less: Cost of goods sold Less: Selling expenses 4 Less: Depreciation 5 Earnings before interest and taxes (EBIT) Less: Interest expense ($680,000*4%) Profit before tax (PBT) 7 8 Less: Taxes (21%) 10 a Net income 11 Operating cash flow (=Net income + Depreciation + Interest expense) $185,762.00 12 b Ln

Formula sheet:

A В C 1 Item Amount $865,000.00 Sales $455,000.00 Less: Cost of goods sold Less: Selling expenses $210,000.00 4 $105,000.00 Less: Depreciation Earnings before interest and taxes (EBIT) C2-C3-C4-C5 Less: Interest expense ($680,000*4%) 4%*680000 7 Profit before tax (PBT) Less: Taxes (21%) 8 C6-C7 21%*C8 9 10 a Net income -C8-C9 11 Operating cash flow ('=Net income Depreciation Interest expense) =C10+C7+C5 12 b Nm