During the year, Belyk Paving Co. had sales of $2,398,000. Cost of goods sold, administrative and selling

During the year, Belyk Paving Co. had sales of $2,398,000. Cost of goods sold, administrative and selling expenses, and depreciation expense were $1,427,000, $435,200, and $490,200, respectively. In addition, the company had an interest expense of $215,200 and a tax rate of 30 percent. (Ignore any tax loss carryback or carryforward provisions.) (Enter your answer as directed, but do not round intermediate calculations.)

Required:
(a)	What is Belyk’s net income? (Negative amount should be indicated by a minus sign.)

Net income

$

(b)	What is Belyk’s operating cash flow?

Operating cash flow

$

Explanation: (a)

The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income Statement
Sales	$	2,398,000
Cost of goods sold		1,427,000
Other expenses		435,200
Depreciation		490,200
EBIT	$	45,600
Interest		215,200
Taxable income	–$	169,600
Taxes (30%)		0
Net income	–$	169,600

The taxes are zero since we are ignoring any carryback or carryforward provisions.

(b)

The operating cash flow for the year was:

OCF = EBIT + Depreciation – Taxes

OCF = $45,600 + 490,200 – 0

OCF = $535,800

Net income was negative because of the tax deductibility of depreciation and interest expense. However, the actual cash flow from operations was positive because depreciation is a non-cash expense and interest is a financing, not an operating, expense.