Question

The text states, "Overly sufficiently long time periods, net income equals cash inflows minus cash outflows,...

The text states, "Overly sufficiently long time periods, net income equals cash inflows minus cash outflows, other than cash flows with owners". Demonstrate the accuracy of this statement in the following scenario: Two friends contributed 50,000 each to form a new business. The owners used the amounts contributed to purchase a machine for 100,000 cash. They estimated that the useful life of the machine was five years and the salvage value was 20,000. They rented out the machine to a customer for an annual rental of 25,000 a year for five years. Annual cash operating costs for insurance, taxes, and other items totaled 6,000 annually. At the end of the fifth year, the owners sold equipment for 22,000, instead of the 20,000 salvage value initially estimated. (Hint: Compute the total net income and the total cash flows other than cash flows with owners for the five-year period as a whole.)

You may want to present a table to support your conclusion. If so, please create the table in Excel and then cut and paste it to a word document with text explaining your answer.

Homework Answers

Answer #1
Cash Equipment Common stock Net Income
Cash contributed by owners 100000 100000
Purchase of m/c for cash -100000 100000
Recognition of Rent revenue 125000 125000
Recognition of Opg. Expenses -30000 -30000
Recognition of depn. -80000 -80000
Sale of m/c 22000 -20000 2000
Totals 117000 0 100000 17000
Cash inflow-Cash ouflows(other than c/f with owners)(117000-100000) 17000
Net Income (as per Col.5) 17000
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
"Overly sufficiently long time periods, net income equals cash inflows minus cash outflows, other than cash...
"Overly sufficiently long time periods, net income equals cash inflows minus cash outflows, other than cash flows with owners". Demonstrate the accuracy of this statement in the following scenario: Two friends contributed 50,000 each to form a new business. The owners used the amounts contributed to purchase a machine for 100,000 cash. They estimated that the useful life of the machine was five years and the salvage value was 20,000. They rented out the machine to a customer for an...
Income Flows Versus Cash Flows The text states, "Over sufficiently long time periods, net income equals...
Income Flows Versus Cash Flows The text states, "Over sufficiently long time periods, net income equals cash inflows minus cash outflows, other than cash flows with owners." Demonstrate the accuracy of this statement in the following scenario: Two friends contributed $50,000 each to form a new business. The owners used the amounts contributed to purchase a machine for $100,000 cash. They estimated that the useful life of the machine was five years and the salvage value was $20,000. They rented...
When the annual cash flows are unequal, the payback period is computed by adding the annual...
When the annual cash flows are unequal, the payback period is computed by adding the annual cash flows until such time as the original investment is recovered. If a fraction of a year is needed, it is assumed that cash flows occur evenly within each year. The steps for determining the payback period with uneven cash flows is as follows: Add the annual cash flows to one another until the investment is recovered. For each full year's worth of cash...
Rockyford Company must replace some machinery that has zero book value and a current market value...
Rockyford Company must replace some machinery that has zero book value and a current market value of $2,800. One possibility is to invest in new machinery costing $50,000. This new machinery would produce estimated annual pretax cash operating savings of $20,000. Assume the new machine will have a useful life of four years and depreciation of $12,500 each year for book and tax purposes. It will have no salvage value at the end of four years. The investment in this...
Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would...
Brooks Clinic is considering investing in new heart-monitoring equipment. It has two options. Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher. Since the Option B machine is of initial higher quality, it is expected to have a salvage value at the end of its useful life. The following estimates were made of the cash flows....
(a) Develop proforma Project Income Statement Using Excel Spreadsheet (b) Compute Net Project Cash flows, NPV,...
(a) Develop proforma Project Income Statement Using Excel Spreadsheet (b) Compute Net Project Cash flows, NPV, IRR and PayBack Period (c) Develop Problem-Solving and Critical Thinking Skills 1) Life Period of the Equipment = 4 years 8) Sales for first year (1) $   200,000 2) New equipment cost $ (200,000) 9) Sales increase per year 5% 3) Equipment ship & install cost $     (35,000) 10) Operating cost: $ (120,000) 4) Related start up cost $       (5,000)     (60 Percent of...
After-Tax Cash Flows Below is a list of aspects of various capital expenditure proposals that the...
After-Tax Cash Flows Below is a list of aspects of various capital expenditure proposals that the capital budgeting team of Anchor, Inc., has incorporated into its net present value analyses during the past year. Unless otherwise noted, the items listed are unrelated to each other. All situations assume a 40% income tax rate and an 11% minimum desired rate of return. 1. Pre-tax savings of $4,000 in cash expenses will occur in each of the next three years. 2. A...
1. Learning Objectives (a)  Develop proforma Project Income Statement Using Excel Spreadsheet (b)  Compute  Net Project Cash flows, NPV,  IRR...
1. Learning Objectives (a)  Develop proforma Project Income Statement Using Excel Spreadsheet (b)  Compute  Net Project Cash flows, NPV,  IRR and PayBack Period 1) Life Period of the Equipment = 4 years 8) Sales for first year (1) $     200,000 2) New equipment cost $          (200,000) 9) Sales increase per year 4% 3) Equipment ship & install cost $            (25,000) 10) Operating cost: $    (120,000) 4) Related start up cost $              (5,000)     (60 Percent of Sales) -60% 5) Inventory increase $             25,000 11) Depreciation (Straight Line)/YR $      (60,000) 6) Accounts Payable...
1. Learning Objectives (a)  Develop proforma Project Income Statement Using Excel Spreadsheet (b)  Compute  Net Project Cash flows, NPV,  IRR...
1. Learning Objectives (a)  Develop proforma Project Income Statement Using Excel Spreadsheet (b)  Compute  Net Project Cash flows, NPV,  IRR and PayBack Period 1) Life Period of the Equipment = 4 years 8) Sales for first year (1) $     200,000 2) New equipment cost $          (200,000) 9) Sales increase per year 4% 3) Equipment ship & install cost $            (25,000) 10) Operating cost: $    (120,000) 4) Related start up cost $              (5,000)     (60 Percent of Sales) -60% 5) Inventory increase $             25,000 11) Depreciation (Straight Line)/YR $      (60,000) 6) Accounts Payable...
1. Learning Objectives (a)  Develop proforma Project Income Statement Using Excel Spreadsheet (b)  Compute  Net Project Cash flows, NPV,  IRR...
1. Learning Objectives (a)  Develop proforma Project Income Statement Using Excel Spreadsheet (b)  Compute  Net Project Cash flows, NPV,  IRR and PayBack Period 1) Life Period of the Equipment = 4 years 8) Sales for first year (1) $     200,000 2) New equipment cost $          (200,000) 9) Sales increase per year 4% 3) Equipment ship & install cost $            (25,000) 10) Operating cost: $    (120,000) 4) Related start up cost $              (5,000)     (60 Percent of Sales) -60% 5) Inventory increase $             25,000 11) Depreciation (Straight Line)/YR $      (60,000) 6) Accounts Payable...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT