A firm's tax rate is 40%. If its pretax income is overstated by 100 due to errors in recording cash transactions, then the operating cash flow due to these errors is:
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A. B. C. D.C
operating cash flow = net income + noncash expenses - non-cash revenues - cash reductions in operating accounts Since the pretax income is overstated by 100, net income is overstated by 100*(1-0.4) = 60. Since the errors are in the cash transaction accounts, not non-cash accounts, this implies that operating cash flow is overstated by 60 due to these errors.