Problem 3-2

Timberline Inc. had the following current accounts last year. ($000)

	Beginning		Ending			Beginning		Ending
Cash	$ 175		$ 238		Accounts payable	$205		$182
Accounts receivable	1,456		2,207		Accruals	$95		83
Inventory	943		786
Current assets	$2,574		$3,231		Current liabilities	$300		$265

In addition, the company had sales revenues of $9,495,000 and costs and expenses (including interest and tax) of $7,580,000. Depreciation of $1,485,000 is included in the cost and expense figures.

Construct a statement showing Timberline's Cash from Operating Activities, including a detail of changes in balance sheet accounts.

Cash Flows From Operating Activities.

Net Income

$

Depreciation

Net change in current accounts

Cash flow from operating activities

Problem 3-4

Fitch Inc's financial statements are as follows:

Fitch Inc.
Balance Sheet
For the period ended 12/31/X1 ($000)
				ASSETS
		12/31/X0			12/31/X1
Cash		$	2,200		$	2,682
Accounts receivable			4,814			5,632
Inventory			3,217			2,843
CURRENT ASSETS		$	10,231		$	11,157
Fixed assets
Gross		$	35,183		$	39,456
Accumulated deprec.			(22,657)			(24,905)
Net		$	12,526		$	14,551
TOTAL ASSETS		$	22,757		$	25,708
				LIABILITIES
Accounts payable		$	1,649		$	1,385
Accruals			474			1,279
CURRENT LIABILITIES		$	2,123		$	2,664
Long-term debt		$	1,823		$	409
Equity			18,811			22,635
TOTAL CAPITAL		$	20,634		$	23,044
TOTAL LIABILITIES AND EQUITY		$	22,757		$	25,708

Fitch Inc.
Income Statement
For the period ended 12/31/X1
($000)
Sales		$	40,533
COGS			14,374
Gross margin		$	26,159
Expense		$	19,290
EBIT		$	6,869
Interest			180
EBT		$	6,689
Tax			2,265
Net income		$	4,424

Fitch also sold stock for $2.5 million and paid dividends of $3.1 million. No fixed assets were retired during the year. (Hint: That implies fixed asset purchases and depreciation are the only changes in gross and accumulated depreciation accounts.)

Construct Fitch's statement of cash flows for 20X1. Enter your answers in thousands. For example, an answer of $1.2 million should be entered as 1200, not 1200000. Use a minus sign, to indicate any decreases in cash or cash outflows.

FITCH INC. Statement of Cash Flows For the period ended 12/31/X1 ($000)
OPERATING ACTIVITIES:
	Net Income	$
	Depreciation	$
	Net changes in current accounts	$
Cash from Operating Activities		$
INVESTING ACTIVITIES:
	Increase in Fixed Assets	$
Cash from Investing Activities		$
FINANCING ACTIVITIES:
	Decrease in Debt	$
	Dividends Paid	$
	Sale of Stock	$
Cash from Financing Activities		$
NET CASH FLOW		$

Reconciliation

Beginning Cash

$

Net Cash Flow

$

Ending Cash

$

Problem 3-5

Axtel Company has the following financial statements.

Axtel Company
Balance Sheet
For the period ended 12/31/X1 ($000)
				ASSETS
		12/31/X0			12/31/X1
Cash		$	3,484		$	2,863
Accounts receivable			6,590			5,505
Inventory			2,573			3,220
CURRENT ASSETS		$	12,647		$	11,588
Fixed assets
Gross		$	22,478		$	24,360
Accumulated deprec.			(11,965)			(13,223)
Net		$	10,513		$	11,137
TOTAL ASSETS		$	23,160		$	22,725
				LIABILITIES
Accounts payable		$	1,512		$	1,667
Accruals			286			397
CURRENT LIABILITIES		$	1,798		$	2,064
Long-term debt		$	7,112		$	6,002
Equity			14,250			14,659
TOTAL CAPITAL		$	21,362		$	20,661
TOTAL LIABILITIES AND EQUITY		$	23,160		$	22,725

Axtel Company
Income Statement
For the period ended 12/31/X1
($000)
Sales		$	36,247
COGS			19,895
Gross margin		$	16,352
Expense		$	10,898
EBIT		$	5,454
Interest			713
EBT		$	4,741
Tax			1,605
Net income		$	3,136

In addition, Axtel retired stock for $1,000,000 and paid a dividend of $1,727,000. Depreciation for the year was $1,258,000. Construct a statement of cash flows for Axtel for 20X1. (Hint: Retiring stock means buying it back from shareholders. Assume the purchase was made at book value, and treat it like a negative sale of stock.) Enter your answers in thousands. For example, an answer of $200 thousands should be entered as 200, not 200000. Use a minus sign, to indicate any decreases in cash or cash outflows.

Axtel Company Statement of Cash Flows For the period ended 12/31/X1 ($000)
OPERATING ACTIVITIES:
	Net Income	$
	Depreciation	$
	Net changes in current accounts	$
Cash from Operating Activities		$
INVESTING ACTIVITIES:
	Increase in Fixed Assets	$
Cash from Investing Activities		$
FINANCING ACTIVITIES:
	Decrease in Debt	$
	Dividends Paid	$
	Stock Retired	$
Cash from Financing Activities		$
NET CASH FLOW		$

Reconciliation
	Beginning Cash	$
	Net Cash Flow	$
	Ending Cash

Problem 3-6

Fred Klein started his own business recently. He began by depositing $5,000 of his own money (equity) in a business account. Once he'd done that his balance sheet was as follows.

Assets		Liabilities and Equity
Cash	$5,000	Equity	$5,000
Total Assets	$5,000	Total	$5,000

During the next month, his first month of business, he completed the following transactions. (All payments were made with checks out of the bank account.)

Purchased $4,000 worth of inventory, paying $1,500 down and owing the vendor the remainder.

Used $400 of the inventory in making product.

Paid employees' wages on the last day of the month of $1,100.

Sold all the product made in the first month on credit for $3,000.

Paid rent of $1,450.

Construct a balance sheet for Fred's business at the end of its first month. (Hint: Fred's business has only current assets, current liabilities, and an equity account. Calculate the ending balance in each of the current accounts from the information given. The ending equity account balance will be the difference between the current assets and liabilities at month end.) Enter all amounts as positive numbers.

Cash	$	Payables	$
Receivables		Current Liabilities	$
Inventory
Current Assets	$	Equity	$
Total Assets	$	Total Liabilities and Equity	$

Construct Fred's income statement. (Hint: Fred's revenue is the credit sale. His costs/expenses consist of the inventory used in product sold plus the things other than inventory for which he wrote checks. Ignore taxes.)

Revenue		$
Less Cost/Expense
	Wages	$
	Inventory
	Rent
		$
	Net Income	$

Construct Fred's statement of cash flows for the month. (Hint: Fred's beginning balance sheet has only two accounts, cash and equity, each with a $5,000 balance. All other accounts open with zero balances.) Use a minus sign, to indicate any decreases in cash or cash outflows. If an amount is zero, enter "0".

STATEMENT OF CASH FLOWS
Cash Flow From Operating Activities
	Net Income		$
	Depreciation
	Net changes in current accounts
			$
Cash Flow From Investing Activities			$
Cash Flow From Financing Activities			$
		Net Cash Flow	$
Reconciliation
	Beginning cash		$
	Net Cash Flow		$
	Ending Cash		$

Is Fred's business profitable in an accounting sense? In a cash flow sense? The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Can the business fail while making a profit? How might that happen in the next month or so? The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Problem 3-7

The Blandings Home Construction Company purchased a new crane for $350,000 this year. It sold the old crane for $100,000. At the time it had a net book value of $20,000. Assume any profit on the sale of old equipment is taxed at 23%. These were the only transactions that affected investing activities this year. Construct the Cash Flow from Investing Activities section of the statement of cash flows to concisely convey the maximum information to readers of the company's financial statements. Use a minus sign, to indicate any decreases in cash or cash outflows.

Cash From Investing Activities
	Investment in new equipment	$
	Sale of surplus equipment after tax
	Net new investment	$

$