Ch.14- statement of cash flows

Problem 14A – 5               Prepare a Statement of Cash Flows. 

A comparative balance sheet and income statement for Eaton Company follows:

Eaton Company

Comparative Balance Sheet

December 31, 2011 and 2011

 

2011

2010

Assets

 

 

Current Assets:

 

 

Cash

$4

$11

Accounts receivable

$310

$230

Inventory

$160

$195

Prepaid expenses

$8

$6

Total current Assets

$482

$442

Plant and equipment

$500

$420

Less: Accumulated Depreciation

$85

$70

Net plant and equipment

$415

$350

Long term investments

$31

$38

Total Assets

$928

$830

 

Liabilities and Stockholder’s  equity

 

 

Current Liabilities

 

 

Accounts Payable

$300

$225

Accrued Liabilities

$70

$80

Income taxes payable

$71

$63

Total current Liabilities

$441

$368

Bonds Payable

$195

$170

Total Liabilities

$636

$538

Stockholder’s equity

 

 

Common Stock

$160

$200

Retained earnings

$132

$92

Total Stockholder’s equity

$292

$292

Total Liabilities and Stockholder’s equity

$928

$830

 

Eaton Company

Income Statement

For the year ended December 31, 2011

Sales

 

$750

Cost of goods sold

 

$450

Gross Margin

 

$300

Selling and administrative expenses

 

$223

Net operating income

 

$77

Non-operating items

 

 

Gain on sales of investments

$5

 

Loss on sale of equipment

-$2

$3

Income before taxes

 

$80

Income tax

 

$24

Net Income

 

$56

During 2011, Eaton sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long term investments for $12 that had cost $7 when purchased several years ago. A cash dividend was paid during 2011 and the company repurchased $40 of its stock. Eaton did not retire any bonds during 2011.

Required:

1.       Using the direct method, determine the net cash provided by operating activities for 2011.

2.       Using the information in (1) above, along with an analysis of remaining balance sheet accounts, prepare a statement of cash flows for 2011.

 

Problem 14 – 8                  Prepare a Statement of Cash Flows.

A comparative balance sheet and income statement for Eaton Company follows:

Eaton Company

Comparative Balance Sheet

December 31, 2011 and 2011

 

2011

2010

Assets

 

 

Current Assets:

 

 

Cash

$4

$11

Accounts receivable

$310

$230

Inventory

$160

$195

Prepaid expenses

$8

$6

Total current Assets

$482

$442

Plant and equipment

$500

$420

Less: Accumulated Depreciation

$85

$70

Net plant and equipment

$415

$350

Long term investments

$31

$38

Total Assets

$928

$830

 

Liabilities and Stockholder’s  equity

 

 

Current Liabilities

 

 

Accounts Payable

$300

$225

Accrued Liabilities

$70

$80

Income taxes payable

$71

$63

Total current Liabilities

$441

$368

Bonds Payable

$195

$170

Total Liabilities

$636

$538

Stockholder’s equity

 

 

Common Stock

$160

$200

Retained earnings

$132

$92

Total Stockholder’s equity

$292

$292

Total Liabilities and Stockholder’s equity

$928

$830

 

Eaton Company

Income Statement

For the year ended December 31, 2011

Sales

 

$750

Cost of goods sold

 

$450

Gross Margin

 

$300

Selling and administrative expenses

 

$223

Net operating income

 

$77

Non-operating items

 

 

Gain on sales of investments

$5

 

Loss on sale of equipment

-$2

$3

Income before taxes

 

$80

Income tax

 

$24

Net Income

 

$56

During 2011, Eaton sold some equipment for $18 that had cost $30 and on which there was accumulated depreciation of $10. In addition, the company sold long term investments for $12 that had cost $7 when purchased several years ago. A cash dividend was paid during 2011 and the company repurchased $40 of its stock. Eaton did not retire any bonds during 2011.

Required:

3.       Using the indirect method, determine the net cash provided by operating activities for 2011.

4.       Using the information in (1) above, along with an analysis of remaining balance sheet accounts, prepare a statement of cash flows for 2011.

 

 

 

 

 

Problem 14 – 14               Prepare and Interpret a Statement of Cash Flows; Free Cash Flow

Sharon Feldman, president of Allied Company, considered $20,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $15,000 in cash was available at the end of 2011. Because the company reported a large net income for the year, and also issued bonds and sold some long term investments, the sharp decline in cash is puzzling to Ms. Feldman.

Allied Company

Comparative Balance Sheet

December 31, 2011 and 2011

 

2011

2010

Assets

 

 

Current Assets:

 

 

Cash

$15,000

$33,000

Accounts receivable

$2,00,000

$2,10,000

Inventory

$2,50,000

$1,96,000

Prepaid expenses

$7,000

$15,000

Total current Assets

$4,72,000

$4,54,000

Long term investments

$90,000

$1,20,000

Plant and equipment

$8,60,000

$7,50,000

Less: Accumulated Depreciation

$2,10,000

$1,90,000

Net plant and equipment

$6,50,000

$5,60,000

Total Assets

$12,12,000

$11,34,000

 

Liabilities and Stockholder’s  equity

 

 

Current Liabilities

 

 

Accounts Payable

$1,75,000

$2,30,000

Accrued Liabilities

$8,000

$15,000

Income taxes payable

$42,000

$39,000

Total current Liabilities

$2,25,000

$2,84,000

Bonds Payable

$2,00,000

$1,00,000

Total Liabilities

$4,25,000

$3,84,000

Stockholder’s equity

 

 

Common Stock

$5,95,000

$6,00,000

Retained earnings

$1,92,000

$1,50,000

Total Stockholder’s equity

$7,87,000

$7,50,000

Total Liabilities and Stockholder’s equity

$12,12,000

$11,34,000

 

Allied Company

Income Statement

For the year ended December 31, 2011

Sales

 

$8,00,000

Cost of goods sold

 

$5,00,000

Gross Margin

 

$3,00,000

Selling and administrative expenses

 

$2,14,000

Net operating income

 

$86,000

Non-operating items

 

 

Gain on sales of investments

$20,000

 

Loss on sale of equipment

-$6,000

$14,000

Income before taxes

 

$1,00,000

Income tax

 

$30,000

Net Income

 

$70,000

 

The following additional information is available for the year 2011:

a.       The company sold long term investments with an original cost of $30,000 for $50,000 during the year.

b.      Equipment that had cost $90,000 and on which there was $40,000 in accumulated depreciation was sold during was sold during the year for $44,000.

c.       The company declared and paid cash dividend during the year.

d.      The stock of a dissident stockholder was repurchased for cash and retired during the year. No issues of stock were made.

e.      The company did not retire any bonds during the year.

 

Required:

1.       Using the indirect method, compute the net cash provided by operating activities for 2011.

2.       Prepare a statement of cash flows for 2011.

 

 

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