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The following entries appear on the annual income statement for Peckerwood HoldingsSales $2,775,000Cost of goods sold -$1,210,000Wages -$650,000Depreciation -75,000Interest expenses -$55,000What is Peckerwood's operating cash flow, if its tax rate is 30%?Group of answer choices$663,000$624,000$553,000$549,500None of the other answers is correct

Question

The following entries appear on the annual income statement for Peckerwood HoldingsSales 2,775,000Costofgoodssold2,775,000Cost of goods sold -1,210,000Wages -650,000Depreciation75,000Interestexpenses650,000Depreciation -75,000Interest expenses -55,000What is Peckerwood's operating cash flow, if its tax rate is 30%?Group of answer choices663,000663,000624,000553,000553,000549,500None of the other answers is correct

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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 - Cost of Goods Sold - Wages - Depreciation Operating Income = 2,775,0002,775,000 - 1,210,000 - 650,000650,000 - 75,000 = $840,000

Step 2: Calculate Taxes Taxes = Operating Income * Tax Rate Taxes = 840,00030840,000 * 30% = 252,000

Step 3: Calculate Operating Cash Flow Operating Cash Flow = Operating Income - Taxes Operating Cash Flow = 840,000840,000 - 252,000 = $588,000

So, the operating cash flow for Peckerwood Holdings is $588,000. Therefore, none of the other answers is correct.

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