FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:Assume all operating expenses and all operating income are paid and
received at the end of each respective year. You have organized your
company as a sole proprietorship, so you will pay 20 percent taxes on
the earnings of the firm.
You are planning to quit the business at the end of the third year, at
which time you will sell the equipment for $50,000. When you close the
business, you will recover the inventory, cash register cash, and pay off
your accounts payable.
How much tax would be due on the sale of the machine when you
sell it at the end of the third year? (Note: I am not looking for the
total tax due in the third year, just the taxes related to the sale of
the machine.)
O A. $6,000
O B. $10,000
O C. $8,880
O D. $2,000
O E. Something Else
Transcribed Image Text:You are considering starting a new doughnut shop in the Prince Kuhio
Mall. You wish to complete a cash flow statement to be used for capital
budgeting purposes. You will have to purchase $80,000 of equipment
with cash you have saved to manufacture the doughnuts. You will
purchase the equipment on the day you start the business. You will
depreciate the equipment using 3-year straight-line depreciation to a
salvage value of $20,000.
You will need to have $20,000 of inventory and you will need to have
$5,000 in cash for the cash registers. You will need to have the inventory
and cash in place the day you start the business and it will remain in
place throughout the life of the business. You will owe your suppliers
$5,000 at all times, beginning the day that you start the business and
continuing through the life of the business.
Based on your sales estimate, you believe that you will be able to sell
$1,000,000 of doughnuts per year. You have estimated labor costs to be
$200,000 for the year and it will cost $100,000 per year to rent the space
in the Mall (rent and labor will be paid at the end of the year). The cost of
the ingredients to make the doughnuts will be $250,000 per year.
Assume all operating expenses and all operating income are paid and
received at the end of each respective year. You have organized your
company as a sole proprietorship, so you will pay 20 percent taxes on
the earnings of the firm.
You are planning to quit the business at the end of the third year, at
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