In: Accounting
Alpaca Corporation had revenues of $315,000 in its first year of
operations. The company has not collected on $20,200 of its sales
and still owes $28,300 on $97,500 of merchandise it purchased. The
company had no inventory on hand at the end of the year. The
company paid $14,000 in salaries. Owners invested $20,500 in the
business and $20,500 was borrowed on a five-year note. The company
paid $4,900 in interest that was the amount owed for the year, and
paid $8,900 for a two-year insurance policy on the first day of
business. Alpaca has an effective income tax rate of 36%. (Assume
taxes are paid in the same year).
Compute the cash balance at the end of the first year for Alpaca
Corporation.
Amount | |
Cash invested by the owners | $20,500 |
Add: Cash borrowed on a five year note | $20,500 |
Total cash available for Operations | $41,000 |
Less: Cash paid for two-year insurance poilicy | ($8,900) |
Less: Total Cash paid for the merchadise [$97,500 - $28,300] | ($69,200) |
Add: Total Cash received on sales [$315,000 - $20,200] | $294,800 |
Less: Cash paid in salaries | ($14,000) |
Less: Cash paid in interest | ($4,900) |
Less: Income tax paid [Working Note -1] | ($69,894) |
Cash available at the end of the first year | $168,906 |
**Working Note 1 - Calculation of Income tax paid for the first Year
Amount | Amount | |
Tota sales revenue earned during the year | $315,000 | |
Less: Expenses Incurred during the year | ||
Cost of goods sold (merchandise consumed) | $97,500 | |
Salaries Expense | $14,000 | |
Interest Expense | $4,900 | |
Insurance Expense for the current year (8,900 ÷ 2) | $4,450 | ($120,850) |
Income before Income tax | $194,150 | |
Effective Income tax rate | 36% | |
Income tax Expense [$194,150 x 36%] | $69,894 |