Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Net Sales

Financial Accounting

4. Merchandising Operations

Net Sales

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Multiple Choice

ABC Corporation has the following information for the year:\begin{align}\text{Net Sales} &= \$500,000 \\\text{Cost of Goods Sold} &= \$300,000 \\\text{Operating Expenses} &= \$100,000 \\\text{Depreciation Expense} &= \$20,000 \\\text{Interest Expense} &= \$10,000 \\\text{Income Tax Rate} &= 30\% \end{align}What is the operating cash flow for ABC Corporation?

$70,000

$80,000

$98,000

$90,000

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Verified step by step guidance

Step 1: Start by calculating the Operating Income (EBIT). Operating Income is calculated as Net Sales minus Cost of Goods Sold (COGS) and Operating Expenses. Use the formula: $ \text{Operating Income} = \text{Net Sales} - \text{COGS} - \text{Operating Expenses} $.

Step 2: Add back the Depreciation Expense to the Operating Income. Depreciation is a non-cash expense, so it is added back to calculate the Operating Cash Flow. Use the formula: $ \text{Adjusted Operating Income} = \text{Operating Income} + \text{Depreciation Expense} $.

Step 3: Subtract the Interest Expense from the Adjusted Operating Income to calculate the Earnings Before Tax (EBT). Use the formula: $ \text{EBT} = \text{Adjusted Operating Income} - \text{Interest Expense} $.

Step 4: Calculate the Income Tax Expense by applying the Income Tax Rate to the Earnings Before Tax (EBT). Use the formula: $ \text{Income Tax Expense} = \text{EBT} \times \text{Income Tax Rate} $.

Step 5: Subtract the Income Tax Expense from the Earnings Before Tax (EBT) to calculate the Operating Cash Flow. Use the formula: $ \text{Operating Cash Flow} = \text{EBT} - \text{Income Tax Expense} $.