Refer to all of the facts in Problem 12-6. Required 1. Prepare a statement of cash flows
Question:
Required
1. Prepare a statement of cash flows for 2014 using the indirect method in the Operating Activities section.
2. On the basis of your statement in part (1), draft a brief memo to the president to explain why cash increased during such an unprofitable year. Include in your memo your recommendations for improving the companys bottom line.
Data From Problem 12.6
The income statement for Astro Inc. for 2014 is as follows:
For the Year Ended
December 31, 2014
Sales revenue ..................................................................$ 500,000
Cost of goods sold .............................................................400,000
Gross profit .....................................................................$ 100,000
Operating expenses ..........................................................180,000
Loss before interest and taxes .....................................$ (80,000)
Interest expense .................................................................20,000
Net loss...........................................................................$(100,000)
Presented here are comparative balance sheets:
Other information is as follows:
a. Dividends of $35,000 were declared and paid during the year.
b. Operating expenses include $70,000 of depreciation.
c. Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans.
The president has asked you some questions about the years results. He is disturbed with the $100,000 net loss for the year. He notes, however, that the cash position at the end of the year is improved. He is confused about what appear to be conflicting signals: How could we have possibly added to our bank accounts during such a terrible year of operations?
Step by Step Answer:
Financial Accounting The Impact on Decision Makers
ISBN: 978-1285182964
9th edition
Authors: Gary A. Porter, Curtis L. Norton