Useful Organizing began operations on January 1,20X3,when the owners invested $80,000 cash in the company.Also on January 1,the company paid for a $30,000 machine.The machine has a useful life of 4 years and a $2,000 residual value.During its first year of operations,the company had sales of $96,000 and operating expenses except depreciation of $67,000.All sales were cash sales and all non-depreciation operating expenses were paid in cash.Useful Organizing has a 30% tax rate and pays all taxes on December 31.What is the cash balance after taxes on December 31,20X3,if Useful Organizing uses straight-line depreciation?
A)$55,300
B)$72,400
C)$72,550
D)$94,050
E)$94,400

Question

Quizplus · Accepted Answer

To calculate the cash balance after taxes, we first determine the depreciation expense, income before taxes, taxes, and then the cash balance.1. Depreciation expense = (Cost - Residual value) / Useful life = ($30,000 - $2,000) / 4 = $7,000 per year.2. Income before taxes = Sales - Operating expenses (excluding depreciation) - Depreciation expense = $96,000 - $67,000 - $7,000 = $22,000.3. Taxes = Income before taxes * Tax rate = $22,000 * 30% = $6,600.4. Cash balance after taxes = Initial cash + Sales - Operating expenses (excluding depreciation) - Taxes = $80,000 + $96,000 - $67,000 - $6,600 = $102,400.However, we must also account for the payment for the machine, which was $30,000.Therefore, the final cash balance after taxes and after paying for the machine = $102,400 - $30,000 = $72,400.

Useful Organizing Began Operations on January 1,20X3,when the Owners Invested