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1 September, 06:03

Harris Supply has sales of Sales of $230, Cost of Goods Sold of $78, Depreciation of $40 and Interest Expense of $12. If their tax rate is 35%, what is the net income and operating cash flow?

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  1. 1 September, 06:10
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    cash provided by operating activities 105

    Explanation:

    We will use the indirect method.

    First, we calculate the net income.

    sales 230

    COGS (78)

    depreciation (40)

    interest expense (12)

    EBT 100

    tax rate 35%

    tax expense (35)

    net income 65

    Now, we adjust the income by removing the non-monetary term

    cash flow from operating activities:

    net income 65

    adjustment to net income

    non-monetary term

    depreciation expense 40 (A)

    adjusted net income 105

    cash provided by operating activities 105

    Notes:

    (A) The depreciation expense is an acconting metric, it is used in accounting it does not represent a cash outflow, so it is removed from their effect on net income
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