Complete a Cash Flow Statement and a $11\mathrm{.}5$ page type written recommendation based upon

your analysis.

Crosby Corporation

Nadine Crosby recently took over the full operations of the Cosby Company after the passing of

her aunt. The company manufactures industrial strength shelving. She is an engineer and has

worked for many years with the company, most recently as the head of production. Ms$.$ Crosby

is very comfortable with her position in manufacturing, but as the newly appointed CEO, she

feels it vital for her to better understand the company$$s financial position. In particular, she

wishes to learn more about the cash flow. You have been engaged by her as an outside

consultant to help her better understand the $2019$ cash flows of Crosby Corporation.

To complete the assignment, you must prepare a Statement of Cash Flows for $2019$ and then

address the following questions in your memo to Ms$.$ Crosby:

$1.$ Why is it so important to understand cash flows?

$2.$ What is the general relationship between net income and net cash flows from operating

activities for the firm in $2019?$

$3.$ Has the buildup in plant and equipment in $2019$ been financed in a satisfactory manner?

$4.$ Compute the book value per common share of stock for $2018$ and $2019.$

Include any other observations you have about the company$$s Statement of Cash Flows.

Assignment

Please prepare your written comments in a clear and concise memorandum to Ms$.$ Crosby. $($Use

a standard memorandum format.$)$ Attach a separate sheet presenting a $2019$ Statement of Cash

Flows prepared in proper form. $($Refer to Exhibits $7\mathrm{.}1,7\mathrm{.}2$ and $7\mathrm{.}3$ in the text for reference.$)$

Crosby Corporation

Income Statement

For the Year Ended December $31,2019$

$2019$

Sales $$2,200,000$

Cost of goods sold $1,300,000$

Gross profit $$900,000$

Selling & administrative expenses $420,000$

Depreciation Expense $150,000$

Operating Income $$330,000$

Interest expense $90,000$

Net income before taxes $$240,000$

Taxes $80,000$

Net income $$160,000$

Crosby Corporation

Summary of Changes to Retained Earnings

For the Year Ended December $31,2019$

Retained Earnings Balance, $12/31/18$ $$500,000$

Add: $2019$ Net Income $160,000$

Less: Preferred Stock Dividends Paid $(10,000)$

Less: Common Stock Dividends Paid $(50,000)$

Retained Earnings Balance, $12/31/19$ $$600,000$

Shares Outstanding $12/31/19120,000$

Earnings per Share $$1\mathrm{.}42$

Crossby Corporation

Comparative Balance Sheets

Assets $31-$Dec$-1931-$Dec$-18$

Cash $$100,000$ $$70,000$

Accounts Receivable $($net$)350,000300,000$

Inventory $430,000410,000$

Prepaid Expenses $30,00050,000$

Total current assets $910,000830,000$

Investments $($long$-$term securities$)70,00080,000$

Plant & equipment $2,400,0002,000,000$

Less: Accumulated Depreciation $(1,150,000)(1,000,000)$

Net plant & equipment $1,250,0001,000,000$

Total Assets $$2,230,000$ $$1,910,000$

Liabilities & Stockholders' Equity

Accounts payable $$440,000\mathrm{.}00$ $$250,000$

Notes Payable $400,000400,000$

Accrued expenses $50,00070,000$

Total current liabilites $890,000720,000$

Bond Payable $120,00070,000$

Total liabilities $1,010,000790,000$

Preferred Stock, $$100$ Par $90,00090,000$

Common stock $($$$1$ par value$)120,000120,000$

Capital paid in excess of par $410,000410,000$

Retained earnings $600,000500,000$

Total stockholders' equity $1,220,0001,120,000$

Total Liabilities & Stockolders' Equity$$2,230,000$ $$1,910,000$