Question

During the year, Belyk Paving Co. had sales of $2,365,000. Cost of goods sold administrative and selling expenses and depreciation expense were $1,315,000, $595,000, and $438,000, respectively. In addition, the company had an interest expense of $263,000 and a tax rate of 21 percent. The company paid out $3888,000 in cash dividends. assume that net capital spending was zero, no new investments were made in net working capital and no new stock was issued during the year. (Ignore any tax loss or carryforward provision and assume interest expense is fully deductible.)

Calculate the firm's new new long-term debt added during the year. (Do not round intermediate calculations and round your answer to the nearest whole number)

Answer 1

Solution:

Calculation of new long term debt:

	Amount
Sale	$2365,000
Less:Cost of goods sold	$1315,000
Less:Selling &Administrative expense	$595,000
Less:depreciation	$438,000
Earning before interest and tax	$17000
Less:Interest expense	$263,000
Loss before tax	($246,000)
Less:Tax@21%(since there is loss,hence no tax)	$0
net loss	($246,000)

Cash profit=Net loss+Depreciation

=($246,000)+$438,000

=$192,000

Net new long term debt added during the year is

=Cash profit-dividend paid during the year

=$192,000-$3888,000

=$3696,000

Thus,new long term added during the year is $3696,000.