Problem 12-13B Prepare and Interpret a Statement of Cash Flows; Free Cash Flow (LO12-1, L012-2, L012-3] Cheryl Wilson, president of Rivers Company, considers $25,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $20,000 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. Wilson Rivers Company Comparative Balance Sheet December 31, 2011, and 2010 2011 2010 Assets Current assets: Cash $ 20,000 $ 39,000 Accounts Receivable 206.000 216,500 Inventory 254,500 199,000 Prepaid expenses 10,500 21,000 Total current assets 491,000 475,500 Long-term investments 105,000 145,000 Plant and equipment Less accumulated depreciation 870,000 212,500 755,000 191.500 Net plant and equipment 657,500 563,500 Total assets $1.253,500 $ 1.184.000 Liabilities and Stockholders' equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable $ 179,500 8,500 46,000 $ 235,500 16,000 41.500 Total current liabilities Bonds Payable 234.000 215,000 293,000 110,000 Total liabilities 449,000 403,000 Stockholders' equity: Common stock Retained earnings 607,500 197,000 625,000 156,000 Total stockholders' equity 804,500 781,000 Total liabilities and stockholders' equity $1,253,500 $1,184.000 Rivers Company Income Statement For the Year Ended December 31, 2011 Sales Cost of goods sold $ 900,000 562,500 Gross margin Selling and administrative expenses 337,500 240,750 96,750 Net operating income Non operating items: Gain on sale of investments Loss on sale of equipment $ 22,500 (7,000) 15,500 Income before taxes Income taxes 112,250 33,650 Net income $ 78,600 The following additional information is available for the year 2011: a. The company sold long-term investments with an original cost of $40,000 for $62,500 during the year. b. Equipment that had cost $100,000 and on which there was $45,000 in accumulated depreciation was sold during the year for $48,000. c. The company declared and paid a 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, determine the net cash provided by/used by operating activities for 2011 (Negative amount should be indicated by a minus sign.) Net cash operating activities 2 YouTube - Broadc... YouTube NETFLIX G gmail.com MInbox (61) - armin... 2. Prepare a statement of cash flows for 2011. (Amounts to be deducted and negative amounts should be Indicated with a minus sign.) Rivers Company Statement of Cash Flows - Indirect Method For the Year Ended December 31, 2011 Operating activities: Adjustments to convert net income to cash basis: Investing activities: Financing activities Cash balance, beginning of year Cash balance, end of year
