Question

The owner of a bicycle repair shop forecasts revenues of $236,000 a year. Variable costs will be $69,000, and rental costs for the shop are $49,000 a year. Depreciation on the repair tools will be $29,000. Prepare an income statement for the shop based on thee estimates. The tax rate is 20%. Calculate the operating cash flow by using dollars in minus dollars out, adjusted accounting profits, after tax operating cash flow.

Answer 1

A. $71,200

Bi)$100,200

Bii)$100,200

Biii)$100,200

Step-by-step explanation:

A. Preparation of an income statement for the shop based on thee estimates

INCOME STATEMENT

Revenues $236,000

Expenses:

Variable costs $69,000

Rental cost $49,000

Depreciation $29,000

Total Expenses $147,000

Tax profit $89,000

($236,000-$147,000)

Less Income Tax (at 20%) $17,800

(20%*$89,000)

Net Income $71,200

($89,000-$17,800)

Therefore Net Income will be $71,200

bi) Calculation for the operating cash flow by using dollars in minus dollars out method

Using this formula

Operating cash flow=Revenue-Cash expenses-Taxes

Let plug in the formula

Operating cash flow=$236,000-($69,000+$49,000)-$17,800

Operating cash flow=$236,000-$118,000-$17,800

Operating cash flow=$100,200

Therefore the operating cash flow by using dollars in minus dollars out method will be $100,200

bii) Calculation of the operating cash flow by using adjusted accounting profits,

Adjusted accounting profit=$71,200+$29,000

Adjusted accounting profits=$100,200

Therefore the operating cash flow by using adjusted accounting profits will be $100,200

biii)Calculate the operating cash flow by using after tax operating cash flow

After tax operating cash flow=[$236,000-($69,000+$49,000)]*(1-0.20)+(0.20*$29,000)

After tax operating cash flow=($236,000-$118,000)*0.80+$5,800

After tax operating cash flow=($118,000*0.80)+$5,800

After tax operating cash flow=$94,400+$5,800

After tax operating cash flow=$100,200

Therefore the operating cash flow by using after tax operating cash flow will be $100,200