Question
Sharon Feldman, president of Allied Company, considers $44,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements,
Sharon Feldman, president of Allied Company, considers $44,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $39,000 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. Feldman. |
Allied Company Comparative Balance Sheet December 31, 2011, and 2010 | ||||||
2011 | 2010 | |||||
Assets | ||||||
Current assets: | ||||||
Cash | $ | 39,000 | $ | 61,800 | ||
Accounts Receivable | 228,800 | 241,200 | ||||
Inventory | 271,600 | 210,400 | ||||
Prepaid expenses | 23,800 | 43,800 | ||||
Total current assets | 563,200 | 557,200 | ||||
Long-term investments | 162,000 | 240,000 | ||||
Plant and equipment | 908,000 | 774,000 | ||||
Less accumulated depreciation | 222,000 | 197,200 | ||||
Net plant and equipment | 686,000 | 576,800 | ||||
Total assets | $ | 1,411,200 | $ | 1,374,000 | ||
Liabilities and Stockholders' equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 196,600 | $ | 256,400 | ||
Accrued liabilities | 10,400 | 19,800 | ||||
Income taxes payable | 61,200 | 51,000 | ||||
Total current liabilities | 268,200 | 327,200 | ||||
Bonds Payable | 272,000 | 148,000 | ||||
Total liabilities | 540,200 | 475,200 | ||||
Stockholders equity: | ||||||
Common stock | 655,000 | 720,000 | ||||
Retained earnings | 216,000 | 178,800 | ||||
Total stockholders' equity | 871,000 | 898,800 | ||||
Total liabilities and stockholders' equity | $ | 1,411,200 | $ | 1,374,000 | ||
Allied Company Income Statement For the Year Ended December 31, 2011 | |||
Sales | $ | 1,280,000 | |
Cost of goods sold | 800,000 | ||
Gross margin | 480,000 | ||
Selling and administrative expenses | 342,400 | ||
Net operating income | 137,600 | ||
Non operating items: | |||
Gain on sale of investments | $32,000 | ||
Loss on sale of equipment | (10,800) | 21,200 | |
Income before taxes | 158,800 | ||
Income taxes | 47,520 | ||
Net income | $ | 111,280 | |
The following additional information is available for the year 2011: |
a. | The company sold long-term investments with an original cost of $78,000 for $110,000 during the year. |
b. | Equipment that had cost $138,000 and on which there was $64,000 in accumulated depreciation was sold during the year for $63,200. |
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, compute the net cash for operating activities for 2011. (Negative amount should be indicated by a minus sign.) |
Net cash (Click to select)provided byused in operating activities | $ |
2. | Prepare a statement of cash flows for 2011. (Amounts to be deducted and negative amounts should be indicated with a minus sign.) |
Allied Company Statement of Cash Flows For the Year Ended December 31, 2011 | ||
Operating activities: | ||
(Click to select)Net incomeNet loss | $ | |
Adjustments to convert net income to cash basis: | ||
(Click to select)Decrease in prepaid expensesIncrease in prepaid expensesDepreciationIncrease in inventoryIncrease in income taxes payableLoss on sale of equipmentDecrease in accrued liabilitiesGain on sale of investmentsGain on sale of equipmentDecrease in accounts receivableDecrease in accounts payableLoss on sale of investmentsDecrease in inventory | $ | |
(Click to select)Decrease in accrued liabilitiesDecrease in accounts receivableIncrease in prepaid expensesIncrease in inventoryLoss on sale of investmentsGain on sale of investmentsDecrease in inventoryDepreciationIncrease in income taxes payableLoss on sale of equipmentDecrease in prepaid expensesDecrease in accounts payableGain on sale of equipment | ||
(Click to select)Increase in income taxes payableDecrease in accounts payableDepreciationIncrease in prepaid expensesGain on sale of equipmentLoss on sale of equipmentDecrease in accrued liabilitiesGain on sale of investmentsLoss on sale of investmentsIncrease in inventoryDecrease in inventoryDecrease in accounts receivableDecrease in prepaid expenses | ||
(Click to select)Decrease in accrued liabilitiesDecrease in inventoryIncrease in income taxes payableDecrease in accounts payableGain on sale of equipmentDepreciationDecrease in prepaid expensesDecrease in accounts receivableIncrease in prepaid expensesLoss on sale of equipmentLoss on sale of investmentsGain on sale of investmentsIncrease in inventory | ||
(Click to select)Gain on sale of equipmentIncrease in inventoryDecrease in accounts payableDepreciationDecrease in accounts receivableLoss on sale of investmentsLoss on sale of equipmentDecrease in prepaid expensesDecrease in accrued liabilitiesIncrease in income taxes payableIncrease in prepaid expensesDecrease in inventoryGain on sale of investments | ||
(Click to select)Increase in prepaid expensesDecrease in accounts payableDecrease in inventoryGain on sale of equipmentDecrease in accrued liabilitiesLoss on sale of equipmentDecrease in accounts receivableDecrease in prepaid expensesIncrease in inventoryGain on sale of investmentsLoss on sale of investmentsIncrease in income taxes payableDepreciation | ||
(Click to select)Increase in inventoryDecrease in accounts payableIncrease in income taxes payableDecrease in accounts receivableDecrease in accrued liabilitiesIncrease in prepaid expensesGain on sale of investmentsLoss on sale of equipmentLoss on sale of investmentsDepreciationGain on sale of equipmentDecrease in inventoryDecrease in prepaid expenses | ||
(Click to select)Gain on sale of equipmentDecrease in prepaid expensesGain on sale of investmentsDecrease in accounts receivableDecrease in accounts payableIncrease in prepaid expensesLoss on sale of equipmentIncrease in income taxes payableDecrease in accrued liabilitiesLoss on sale of investmentsDecrease in inventoryDepreciationIncrease in inventory | ||
(Click to select)Decrease in accrued liabilitiesDepreciationLoss on sale of equipmentGain on sale of equipmentIncrease in prepaid expensesIncrease in income taxes payableIncrease in inventoryDecrease in prepaid expensesLoss on sale of investmentsDecrease in accounts receivableGain on sale of investmentsDecrease in inventoryDecrease in accounts payable | ||
Net cash (Click to select)used inprovided by operating activities | ||
Investing activities: | ||
(Click to select)Decrease in accounts payableProceeds from sale of equipmentIncrease in prepaid expensesIncrease in plant and equipmentGain on sale of investmentsIncrease in inventoryDecrease in accounts receivableIncrease in accounts receivableProceeds from sale of long-term investmentsLoss on sale of equipmentDecrease in accrued liabilitiesDecrease in plant and equipmentIncrease in accounts payableDecrease in prepaid expenses | ||
(Click to select)Increase in accounts receivableIncrease in accounts payableProceeds from sale of equipmentLoss on sale of equipmentIncrease in plant and equipmentGain on sale of investmentsProceeds from sale of long-term investmentsDecrease in prepaid expensesIncrease in prepaid expensesDecrease in plant and equipmentIncrease in inventoryDecrease in accrued liabilitiesDecrease in accounts payableDecrease in accounts receivable | ||
(Click to select)Decrease in prepaid expensesDecrease in plant and equipmentIncrease in accounts payableLoss on sale of equipmentIncrease in inventoryProceeds from sale of long-term investmentsDecrease in accounts payableIncrease in accounts receivableDecrease in accrued liabilitiesGain on sale of investmentsIncrease in plant and equipmentIncrease in prepaid expensesDecrease in accounts receivableProceeds from sale of equipment | ||
Net cash (Click to select)used inprovided by investing activities | ||
Financing activities: | ||
(Click to select)Cash dividendsIssuance of bonds payableDecrease in prepaid expensesProceeds from sale of equipmentDecrease in accounts payableAdditions to plant and equipmentIncrease in accounts payableIncrease in inventoryDecrease in common stockIncrease in accounts receivableDecrease in accounts receivable | ||
(Click to select)Increase in inventoryCash dividendsDecrease in prepaid expensesDecrease in accounts payableIncrease in accounts payableAdditions to plant and equipmentProceeds from sale of equipmentIssuance of bonds payableIncrease in accounts receivableDecrease in accounts receivableDecrease in common stock | ||
(Click to select)Proceeds from sale of equipmentAdditions to plant and equipmentDecrease in common stockDecrease in accounts receivableIncrease in accounts payableCash dividendsIncrease in inventoryIssuance of bonds payableDecrease in prepaid expensesIncrease in accounts receivableDecrease in accounts payable | ||
Net cash (Click to select)provided byused in financing activities | ||
(Click to select)Net decrease in cashNet increase in cash | ||
Cash balance, beginning of year | ||
Cash balance, end of year | $ | |
3. | Compute the free cash flow for 2011. (Negative amount should be indicated by a minus sign.) |
Free cash flow | $ |
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