Question

During the year, Johnson tire company had gross sales of $1.12 million. The companys cost of goods sold and selling expenses were $581,000 and $234,000, respectively. The company also had notes payable of $730,000. The notes carried and interest rate of 5%. Depreciation was $111,000. The tax rate was 21 percent. What was the Company's net income? What was the Company's operating cash flow?

Answer 1

The company's net income is computed as shown below:

= ( Gross sales - cost of goods sold - selling expenses - interest expense - depreciation expense ) - tax @ 21%

= ( $ 1,120,000 - $ 581,000 - $ 234,000 - $ 730,000 x 5% - $ 111,000) - 21%

= ( $ 1,120,000 - $ 581,000 - $ 234,000 - $ 36,500 - $ 111,000) - 21%

= $ 157,500 - 21%

= $ 157,500 - $ 33,075

= $ 124,425

The company's operating cash flow is computed as shown below:

= Earnings before interest and tax + Depreciation - tax expenses

= ( Gross sales - cost of goods sold - selling expenses - depreciation expense ) + Depreciation - tax expenses

=  ($ 1,120,000 - $ 581,000 - $ 234,000 - $ 111,000) + $ 111,000 - $ 33,075

= $ 271,925

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