Alpaca Corporation had revenues of $315,000 in its first year of operations. The

Question

Alpaca Corporation had revenues of $315,000 in its first year of operations. The company has not collected on $20,200 of its sales and still owes $28,300 on $97,500 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $14,000 in salaries. Owners invested $20,500 in the business and $20,500 was borrowed on a five-year note. The company paid $4,900 in interest that was the amount owed for the year, and paid $8,900 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 36%. (Assume taxes are paid in the same year).

Compute the cash balance at the end of the first year for Alpaca Corporation.

Explanation / Answer

**Working Note 1 - Calculation of Income tax paid for the first Year

Amount Cash invested by the owners $20,500 Add: Cash borrowed on a five year note $20,500 Total cash available for Operations $41,000 Less: Cash paid for two-year insurance poilicy ($8,900) Less: Total Cash paid for the merchadise [$97,500 - $28,300] ($69,200) Add: Total Cash received on sales [$315,000 - $20,200] $294,800 Less: Cash paid in salaries ($14,000) Less: Cash paid in interest ($4,900) Less: Income tax paid [Working Note -1] ($69,894) Cash available at the end of the first year $168,906

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