Alpaca Corporation had revenues of $245,000 in its first year of operations. The company has not collected on $18,800 of its sales and still owes $26,900 on $95,500 of merchandise it purchased. The company had no inventory on hand at the end of the year. The company paid $12,600 in salaries. Owners invested $13,500 in the business and $13,500 was borrowed on a five-year note. The company paid $3,800 in interest that was the amount owed for the year, and paid $7,800 for a two-year insurance policy on the first day of business. Alpaca has an effective income tax rate of 40%. (Assume taxes are paid in the same year). Compute the cash balance at the end of the first year for Alpaca Corporation.

The cash balance at the end of the first year for Alpaca Corporation is $95,220.

Explanation:

Before the cash balance at the end of the first year, the following are first computed:

Insurance for the year = Amount paid for a two-year insurance policy / 2 = $7,800 / 2 = $3,900

Profit before tax = Revenue – Merchandise purchased – Salaries – Interest for the year – Insurance for the year = $245,000 - $95,500 - $12,600 - $3,800 - $3,900 = $129,200

Tax paid = Profit before tax * Tax rate = $129,200 * 40% = $51,680

Cash collected on sales = Revenue – Amount not yet collected on sales = $245,000 - $18,800 = $226,200

Cash paid on merchandise purchased = Merchandise purchased – Amount being owed on merchandise purchased = $95,500 - $26,900 = $68,600

The cash balance at the end of the first year can now be computed as follows:

Cash balance at the end of the first year = Amount invested by the owners in the business + Cash collected on sales - Cash paid on merchandise purchased - Amount paid for a two-year insurance policy - Tax paid - Salaries – Interest for paid = $13,500 + $226,200 - $68,600 - $7,800 - $51,680 - $12,600 - $3,800 = $95,220

Therefore, the cash balance at the end of the first year for Alpaca Corporation is $95,220.

answer: e

explanation:

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