Question

1. Sunflower Oil has total sales of $1,300,000 and costs of $900,000. Depreciation is $42,000 and the tax rate is 34 percent. The firm has interest expenses of $10,000.  
   1. Prepare an income statement of this company.
2. 2. What is the operating cash flow?

2. The 2008 balance sheet of Global Tours showed current assets of $1,360 and current liabilities of $940. The 2009 balance sheet showed current assets of $1,640 and current liabilities of $1,140. What was the change in net working capital for 2009?

3. Adelson's Electric had beginning long-term debt of $42,511 and ending long-term debt of $48,919. The interest paid was $4,767. What is the amount of the cash flow to creditors?

Answer 1

Answer 1-a
Income statement of the Company
Sunflower Oil
Income Statement
Sales	$1,300,000.00
Less : Costs	$900,000.00
Gross Profit	$400,000.00
Less :Depreciation	$42,000.00
Net Operating Income	$358,000.00
Less : Interest Expense	$10,000.00
Earnings before taxes	$348,000.00
Less : Taxes @ 34%	$118,320.00
Net Income	$229,680.00
Answer 1-b
Operating Cash flow = Net Income + Depreciation
Operating Cash flow = $229,680 + $42,000 = $271,680
Answer 2
Calculation of change in net working capital for 2009
	2008	2009	Increase / (Decrease) in Net working Capital
Current Assets	$1,360.00	$1,640.00
Less : Current Liabilities	$940.00	$1,140.00
Net Working Capital	$420.00	$500.00	$80.00
Answer 3
Amount of cash flow to creditors
Interest Paid		-$4,767.00
Increase in Long term debt [$48,919 - $42,511]		$6,408.00
Cash flow to creditors		$1,641.00