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The following entries appear on the annual income statement for Timber Products Ltd:Sales $987,500Materials -$45,700Selling expenses -$65,800Administrative expenses -$38,600Wages -$236,900Depreciation -$23,700Interest expenses -$24,580What is Timber Products Ltd operating cash flow if its tax rate is 30%?Group of answer choices$362,854$427,460$718,766$576,800

Question

The following entries appear on the annual income statement for Timber Products Ltd:Sales 987,500Materials−987,500Materials -45,700Selling expenses -65,800Administrativeexpenses−65,800Administrative expenses -38,600Wages -236,900Depreciation−236,900Depreciation -23,700Interest expenses -24,580WhatisTimberProductsLtdoperatingcashflowifitstaxrateis3024,580What is Timber Products Ltd operating cash flow if its tax rate is 30%?Group of answer choices362,854427,460427,460718,766$576,800

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Solution

To calculate the operating cash flow, we first need to calculate the operating income (also known as EBIT - Earnings Before Interest and Taxes) and then subtract the taxes.

Step 1: Calculate Operating Income (EBIT) Operating Income = Sales - Materials - Selling expenses - Administrative expenses - Wages - Depreciation Operating Income = 987,500−987,500 - 45,700 - 65,800−65,800 - 38,600 - 236,900−236,900 - 23,700 = $576,800

Step 2: Calculate Taxes Taxes = Operating Income * Tax Rate Taxes = 576,800∗30576,800 * 30% = 173,040

Step 3: Calculate Operating Cash Flow Operating Cash Flow = Operating Income - Taxes Operating Cash Flow = 576,800−576,800 - 173,040 = $403,760

So, the operating cash flow for Timber Products Ltd is $403,760. Therefore, none of the given answers is correct.

This problem has been solved

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