Question

Harris Supply has sales of Sales of $230, Cost of Goods Sold of $78, Depreciation of $40 and Interest Expense of $12. If their tax rate is 35%, what is the net income and operating cash flow?

Answer 1

cash provided by operating activities 105

Step-by-step explanation:

We will use the indirect method.

First, we calculate the net income.

sales 230

COGS (78)

depreciation (40)

interest expense (12)

EBT 100

tax rate 35%

tax expense (35)

net income 65

Now, we adjust the income by removing the non-monetary term

cash flow from operating activities:

net income 65

adjustment to net income

non-monetary term

depreciation expense 40 (A)

adjusted net income 105

cash provided by operating activities 105

Notes:

(A) The depreciation expense is an acconting metric, it is used in accounting it does not represent a cash outflow, so it is removed from their effect on net income