Why does the cash flow from 2002 exceed the profits. Mike Solid started a pizzeria in 1999. For this purpose he rented a building for $1,800 permonth. Two persons were hired to work full-time at the restaurant and six college students werehired to work 30 hours per week delivering pizza. An outside accountant was hired for tax andbookkeeping purposes at a cost of $900 per month. The necessary restaurant equipment anddelivery cars were purchased with cash. Mr. Solid has noticed that expenses for utilities andsupplies have been rather constant. Mr. Solid increased his business between 1999 and 2001.Profits have more than doubled since 1999.Mr. Solid does not understand why his profits have increased faster than his volume.A projected income statement for 2002 has been prepared by the accountant and is shownbelow:Projected Income StatementFor the Year Ended December 31, 2002Sales$308,000Cost of food sold$92,400Wages & fringe benefits of restaurant helpWages & fringe benefits of delivery persons26,65054,100Rent15,500Accounting servicesDepreciation of delivery equipmentDepreciation of restaurant equipment10,90016,0008,000Utilities7,165Supplies (soap, floor wax, etc.)10,645241,36066,64019,992$ 46,648Income before taxesIncome taxesNet IncomeNote: The average pizza sells for $8.50. Assume that Mr. Solid pays out 30 percent of his income in income taxes.

Cash flow and income statement , both are different statements having different meaning , way of…

Projected Income Statement For the Year Ended December 31, 2002 Sales $308,000 Cost of food sold $92,400 Wages & fringe benefits of restaurant help Wages & fringe benefits of delivery persons Rent 26,650 54,100 15,500 Accounting services Depreciation of delivery equipment Depreciation of restaurant equipment Utilities 10,900 16,000 8,000 7,165 Supplies (soap, floor wax, etc.) 10,645 241,360 Income before taxes 66,640 Income taxes 19,992 Net Income $ 46,648

Projected Income Statement For the Year Ended December 31, 2002 Sales $308,000 Cost of food sold $92,400 Wages & fringe benefits of restaurant help Wages & fringe benefits of delivery persons Rent 26,650 54,100 15,500 Accounting services Depreciation of delivery equipment Depreciation of restaurant equipment Utilities 10,900 16,000 8,000 7,165 Supplies (soap, floor wax, etc.) 10,645 241,360 Income before taxes 66,640 Income taxes 19,992 Net Income $ 46,648

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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