Question

Gerry Company has a gross profit of $990,000 and depreciation expense of $220,000. Selling and administrative expense is $116,000. Given that the tax rate is 40 percent, compute the cash flow from operations for Gerry Company.

a) $633,000
b) $634,800
c) $565,200
d) $664,200

Answer 1

To compute the cash flow from operations for Gerry Company, start with the gross profit of $990,000 and make adjustments for depreciation expense and selling and administrative expense. Subtract the tax rate of 40% from the cash flow from operations to find the final result.

Step-by-step explanation:

To compute the cash flow from operations for Gerry Company, we need to start with the gross profit and make adjustments. Gross profit is calculated by subtracting the cost of goods sold from the net sales. In this case, the gross profit is $990,000.

To calculate the cash flow from operations, we need to add back the depreciation expense and subtract the selling and administrative expense. Depreciation expense is $220,000, and selling and administrative expense is $116,000. After making these adjustments, we get a cash flow from operations of $1,094,000.

Finally, we need to subtract the taxes from the cash flow from operations. The tax rate is 40%, so we multiply the cash flow from operations by 0.6. The final result is a cash flow from operations of $656,400.