During 2019, Rainbow Umbrella Corp. had sales of $930,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $680,000, $85,000, and $180,000, respectively. In addition, the company had an interest expense of $55,000 and a tax rate of 21 percent. (Assume that interest is fully deductible.)

Question

Business

Sterling Le

4 June, 08:10

During 2019, Rainbow Umbrella Corp. had sales of $930,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $680,000, $85,000, and $180,000, respectively. In addition, the company had an interest expense of $55,000 and a tax rate of 21 percent. (Assume that interest is fully deductible.)

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Answers (1)

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Dean · Answer 1

a. - $15,000

b. $165,000

Explanation:

The computation is shown below:

The net income is

= EBIT - interest expense

where,

EBIT = Sales - cost of good sold - administrative expense and selling expenses - depreciation expense

= $930,000 - $680,000 - $85,000 - $180,000

= - $15,000

So, the net income is

= - $15,000 - $55,000

= - $70,000

And, The operating cash flow is

= EBIT + Depreciation - income tax expense

= - $15,000 + $180,000 - $0

= $165,000