The owner of a bicycle repair shop forecasts revenues of $160,000 a year. Variable costs will be $50,000, and rental costs for the shop are $30,000 a year. Depreciation on the repair tools will be $10,000.Prepare an income statement for the shop based on these estimates. The tax rate is 20%. Calculate the operating cash flow for the repair shop using the three methods given below:Dollars in minus dollars out.Adjusted accounting profits.Add back depreciation tax shield.

Answered: The owner of a bicycle repair shop…

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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The owner of a bicycle repair shop forecasts revenues of $160,000 a year. Variable costs will be $50,000, and rental costs for the shop are $30,000 a year. Depreciation on the repair tools will be $10,000.

Prepare an income statement for the shop based on these estimates. The tax rate is 20%.
Calculate the operating cash flow for the repair shop using the three methods given below:
1. Dollars in minus dollars out.
2. Adjusted accounting profits.
3. Add back depreciation tax shield.

Expert Solution

Step 1 Introduction

Income Statement :— It is one of the financial statement that shows profitability, total revenue and total expenses of company.

Net income :— It is the difference between total revenue and total expenses.

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