Quality Manufacturing buys a new machine to increase its capacity. The machine goes into operation...
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Accounting
Quality Manufacturing buys a new machine to increase its capacity. The machine goes into operation on December 31, 2011, the last day of Ouality's fiscal year. Quality pays cash for the machine - $1,000,000 delivered and installed. Quality's income tax rate is 30%. How does this transaction affect Quality's 2011 cash flow? The $1,000,000 outlay reduces Quality's tax expense by $300,000 thereby improving their cash flow by $300,000. Quality incurs a $1,000,000 expense for the machine but saves $300,000 in income taxes resulting in a net $700,000 reduction in cash flow. Quality's 2011 cash flow is reduced by $500,000. Quality's 2011 cash flow is reduced by $1,000,000
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