Cash Flow Roosevelt Inc., a consulting service, has a history of paying annual dividends of $1 per
Question:
Cash Flow Roosevelt Inc., a consulting service, has a history of paying annual dividends of $1 per share. Management is trying to determine whether the company will have adequate cash on December 31, 2011, to pay a dividend if one is declared by the board of directors.
The following additional information is available:
• All sales are on account, and accounts receivable are collected one month after the sale. Sales volume has been decreasing 5% each month.
• Operating expenses are paid in cash in the month incurred. Average monthly expenses are $10,000 (excluding the biweekly payroll).
• Biweekly payroll is $4,500, and it will be paid December 15 and December 31.
• Unearned revenue is expected to be earned in December. This amount was taken into consideration in the expected sales volume.
Roosevelt Inc.
Balance Sheet December 1, 2011 Cash $ 15,000 Unearned revenue $ 2,000 Accounts receivable 40,000 Note payable* 30,000 Computer equipment 120,000 Common stock—$2 par 50,000 Retained earnings 93,000 Total liabilities and Total assets $175,000 stockholders’ equity $175,000 *The note payable plus 3% interest for six months is due January 15, 2012.
Required Determine the cash that Roosevelt will have available to pay a dividend on December 31, 2011. Round all amounts to the nearest dollar. Should management recommend that the board of directors declare a dividend? Explain.AppendixLO1
Step by Step Answer:
Using Financial Accounting Information The Alternative To Debits And Credits
ISBN: 9780538452748
7th Edition
Authors: Curtis L. Norton, Gary A. Porter