Question

Alpaca Corporation had revenues of $260,000 in its first year of operations. The company has not collected on $19,100 of its sales and still owes $27,200 on $97,000 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $12,900 in salaries. Owners invested $15,000 in the business and $15,000 was borrowed on a five-year note. The company paid $4,000 in interest that was the amount owed for the year, and paid $8,000 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 38%. (Assume taxes are paid in the same year). Compute the cash balance at the end of the first year for Alpaca Corporation.

Answer 1

Calculation of Net income & Tax liability

Revenues $260,000
Less;Expenses:
Cost of Goods Sold $97,000
Salaries $12,900
Interest $4000
Insurance (8000/2) $ 4000
Net income $142,100

Tax@38% 53,998

Calculation of Ending cash Balance

Cash receipts:
Sales revenue $260,000
Less: Accounts receivable 19,100 $240,900
Owners' investments 15,000
Note payable 15,000
Total receipts $270,900
Cash disbursements:
Purchases 97,000
Less: Accounts payable 27,200 69,800
Salaries paid 12,900
Interest paid 4,000
Insurance paid 8,000

Tax paid 53,998

Total cash disbursements $148,698
Ending cash balance $1,22,202