Question

During the year, Belyk Paving Co. had sales of $2,350,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,310,000, $585,000, and $435,000, respectively. In addition, the company had an interest expense of $260,000 and a tax rate of 25 percent. (Ignore any tax loss or carryforward provision and assume interest expense is fully deductible.)

What is its operating cash flow?

Answer 1

To calculate the operating cash flow for Belyk Paving Co., we add depreciation back to the net income. After calculating net income considering all expenses and taxes, we find that the operating cash flow is $581,250.

Step-by-step explanation:

The question asks us to calculate the operating cash flow for Belyk Paving Co. To find this, we must add depreciation back to the net income, since it does not affect cash flow. First, we need to calculate the net income by taking sales and subtracting all expenses, including cost of goods sold, administrative and selling expenses, depreciation, and interest, then applying the tax rate. Here is the breakdown:

• Sales: $2,350,000
• Cost of Goods Sold: -$1,310,000
• Administrative and Selling Expenses: -$585,000
• Depreciation Expense: -$435,000
• Interest Expense: -$260,000

Now, let's determine the earnings before tax:

Sales - Cost of Goods Sold - Administrative and Selling Expenses - Interest Expense = Earnings Before Tax

$2,350,000 - $1,310,000 - $585,000 - $260,000 = $195,000

Apply the tax rate of 25%:

Tax = Earnings Before Tax × Tax Rate = $195,000 × 25% = $48,750

Now subtract the tax from earnings before tax to get net income:

Net Income = Earnings Before Tax - Tax = $195,000 - $48,750 = $146,250

Finally, add back the depreciation expense to get the operating cash flow:

Operating Cash Flow = Net Income + Depreciation Expense = $146,250 + $435,000 = $581,250