Problem 14A – 5 Prepare a Statement of Cash Flows.
A comparative balance sheet and income statement for Eaton Company follows:
|
Eaton Company |
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|
Comparative Balance Sheet |
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|
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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