Refer to Exercise 26.11. Assume Concrete Suppliers Inc. has assembled the following expected annual income statement data for each of its trucks.
Sales... . . . . . . . . . . . . . . . . . . . . . . . . . $150,000
Less: Expenses (net of depreciation) . . . (70,000)
Depreciation . . . . . . . . . . . . . . . . . . . (35,000)
Income before taxes . . . . . . . . . . . . . . $ 45,000
Taxes @ 40% . . . . . . . . . . . . . . . . . . . (18,000)
Net income . . . . . . . . . . . . . . . . . . . . . $ 27,000
Analyze the above income statement data for expected cash flow effects each year.
In Exercise 26.11
Suppose Concrete Suppliers Inc. sells one of its $155,000 concrete trucks, with an original five year economic life, at the end of Year 3 after taking three years of straight line depreciation. Concrete Suppliers has a 40 percent tax rate. If the truck is sold for its book value, there is no tax effect. If Concrete Suppliers sells the truck for more or less than its book value, there is a gain or loss that has a tax effect.
a. Show the effects on cash flow in Year 3 if the sales price is $80,000.
b. Show the effects on cash flow in Year 3 if the sales price is $20,000.