constructing and analyzing statement of cash flows.
This assignment covers constructing and analyzing statement of cash flows.
Demonstration (showing the work) and Resultant Answer.
Assignments:
CHAPTER 2: #28 parts a,c, and c only
Statement of cash flows
28. Refer to the following financial statements for Crosby Corporation attached below.
a. Prepare a statement of cash flows for the Crosby Corporation using the general procedures indicated in Table 2-10.
b. Describe the general relationship between net income and net cash flows from operating activities for the firm.
c. Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss.
Block, S., Hirt, G., & Danielsen, B. (2013). Foundations of financial management (16th Ed). Retrieved from http://online.vitalsource.com
This assignment covers constructing and analyzing statement of cash flows.
Demonstration (showing the work) and Resultant Answer.
Assignments:
CHAPTER 2: #28 parts a,b, and c only
Statement of cash flows
28. Refer to the following financial statements for Crosby Corporation:
| CROBY CORPORATION Income Statement For the Year Ended December 31, 20X2 | ||
| Sales | $ 2,200,000 | |
| Cost of goods sold | 1,300,000 | |
| Gross Profit | $ 900,000 | |
| Selling and Administrative expense | 420,000 | |
| Depreciation expense | 150,000 | |
| Operating Income | $ 330,000 | |
| Interest expense | 90,000 | |
| Earnings before taxes | $ 240,000 | |
| Taxes | 80,000 | |
| Earnings after taxes | $ 160,000 | |
| Preferred Stock dividends | 10,000 | |
| Earnings available to common stockholders | $ 150,000 | |
| Shares outstanding | 120,000 | |
| Earnings per share | $ 1.25 |
| Statement of Retaining Earnings
For the Year Ended December 31, 2015 |
||
| Retaining earnings, balance, January 1, 20X2 | $500,000 | |
| Add: Earnings available to common stockholders, 20X2 | 150,000 | |
| Deduct: Cash dividends declared and paid in 20×2 | 50,000 | |
| Retained earnings, balance December 21, 20X2 | $ 600,000 |
| Comparative Balance Sheets For 20X1 and 20X2 | ||
| YEAR END FOR | 20X1 | 20X2 |
| Assets | ||
| Current Assets | ||
| Cash | $ 70,000 | $100,000 |
| Accounts receivable (net) | $ 300,000 | $ 350,000 |
| Inventory | 410,000 | 430,000 |
| Prepaid expenses | 50,000 | 30,000 |
| Total current assets | $ 830,000 | $ 910,000 |
| Investments (long-term securities) | 80,000 | 70,000 |
| Plant and equipment | 2,000,000 | 2,400,000 |
| Less: Accumulated depreciation | 1,000,000 | 1,150,000 |
| Net plant and equipment | 1,000,000 | 1,250,000 |
| Total assets | $1,910,000 | $2.230.000 |
| Liabilities and Stockholders’ Equity | ||
| Current liabilities: | ||
| Accounts payable | $ 250,000 | $ 440,000 |
| Notes payable | 400,000 | 400,000 |
| Accrued expenses | 70.000 | 50 000 |
| Total current liabilities | $ 720,000 | $ 890,000 |
| Long term liabilities: | ||
| Bonds payable, 20X2 | 70,000 | 120,000 |
| Total liabilities | ||
| Stockholders’ equity: | ||
| Preferred stock, $100 par value | $ 90,000 | $ 90,000 |
| Common stock, $1 par value | 120,000 | 410,000 |
| Capital paid in excess of par | 410,000 | 410,000 |
| Retained earnings | 500,000 | 600,000 |
| Total stockholders’ equity | $1,120,000 | $1,220,000 |
| Total liabilities and stockholders’ equity | $1,910,000 | $2,230,000 |
a. Prepare a statement of cash flows for the Crosby Corporation using the general procedures indicated in Table 2-10.
b. Describe the general relationship between net income and net cash flows from operating activities for the firm.
c. Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss.
Table 2-10
| KRAMER CORPORATION Statement of Cash Flows For the Year Ended December 31, 2015 | ||
| Cash flows from operating activities: | ||
| Net income (earnings after taxes) | $ 110,500 | |
| Adjustments to determine cash flow from operating activities: | ||
| Add back depreciation | $ 50,000 | |
| Increase in accounts receivable | (30,000) | |
| Increase in inventory | (20,000) | |
| Decrease in prepaid expenses | 10,000 | |
| Increase in accounts payable | 35,000 | |
| Decrease in accrued expenses | (5,000) | |
| Total adjustments | 40,000 | |
| Net cash flows from operating activities | $ 150,500 | |
| Cash flows from investing activities: | ||
| Increase in investments (long-term securities) | $(30,000) | |
| Increase in plant and equipment | (100,000) | |
| Net cash flows from investing activities | (130,000) | |
| Cash flows from financing activities: | ||
| Increase in bonds payable | $ 50,000 | |
| Preferred stock dividends paid | (10,500) | |
| Common stock dividends paid | (50,000) | |
| Net cash flows from financing activities | (10,500) | |
| Net increase (decrease) in cash flows | $ 10,00 |
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