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Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $187,000 and has a 5-year MACRS recovery period a, has gathered the following data relative to the current year's operations: Accruals $14,700 Current assets 114,000 Interest expense Sales revenue 14,100 415,000 Inventory Total costs before depreciation, interest and taxes 71,000 281,000 Tax rate on ordinary income 40% a. Use the relevant data to determine the operating cash flow for the current year. b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm's cash flows. a. Complete the following table to determine the operating cash flow (OCF): (Round to the nearest dollar.) Operating Cash Flow Sales revenue 24 Less: Total costs before depreciation, interest, and taxes Depreciation expense Earnings before interest and taxes Less: Taxes at 40% Net operating profit after taxes (NOPAT) 2$ Plus: Depreciation Operating Cash Flow (OCF)

Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $187,000 and has a 5-year MACRS recovery period a, has gathered the following data relative to the current year's operations: Accruals $14,700 Current assets 114,000 Interest expense Sales revenue 14,100 415,000 Inventory Total costs before depreciation, interest and taxes 71,000 281,000 Tax rate on ordinary income 40% a. Use the relevant data to determine the operating cash flow for the current year. b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm's cash flows. a. Complete the following table to determine the operating cash flow (OCF): (Round to the nearest dollar.) Operating Cash Flow Sales revenue 24 Less: Total costs before depreciation, interest, and taxes Depreciation expense Earnings before interest and taxes Less: Taxes at 40% Net operating profit after taxes (NOPAT) 2$ Plus: Depreciation Operating Cash Flow (OCF)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* 5 years Recovery year 3 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention.
Transcribed Image Text:Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* 5 years Recovery year 3 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention.
Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $187,000 and has a 5-year MACRS recovery period i, has gathered the following data relative to the current year's operations: Accruals $14,700 Current assets 114,000 Interest expense 14,100 415,000 71,000 Sales revenue Inventory Total costs before depreciation, interest and taxes Tax rate on ordinary income 281,000 40% a. Use the relevant data to determine the operating cash flow for the current year. b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm's cash flows. a. Complete the following table to determine the operating cash flow (OCF): (Round to the nearest dollar.) Operating Cash Flow Sales revenue $ Less: Total costs before depreciation, interest, and taxes Depreciation expense Earnings before interest and taxes $ Less: Taxes at 40% Net operating profit after taxes (NOPAT) Plus: Depreciation Operating Cash Flow (OCF)
Transcribed Image Text:Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $187,000 and has a 5-year MACRS recovery period i, has gathered the following data relative to the current year's operations: Accruals $14,700 Current assets 114,000 Interest expense 14,100 415,000 71,000 Sales revenue Inventory Total costs before depreciation, interest and taxes Tax rate on ordinary income 281,000 40% a. Use the relevant data to determine the operating cash flow for the current year. b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm's cash flows. a. Complete the following table to determine the operating cash flow (OCF): (Round to the nearest dollar.) Operating Cash Flow Sales revenue $ Less: Total costs before depreciation, interest, and taxes Depreciation expense Earnings before interest and taxes $ Less: Taxes at 40% Net operating profit after taxes (NOPAT) Plus: Depreciation Operating Cash Flow (OCF)
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