ACC 100 Lecture Notes - Lecture 10: Cash Flow Statement, Cash Flow, Promissory Note
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Statement of Cash Flows Using a Work Sheet—Indirect Method (Appendix)
Peoria Corp. just completed another successful year, as indicated by the following income statement:
| For the Year Ended December 31, 2017 | |
| Sales revenue | $1,250,000 |
| Cost of goods sold | 700,000 |
| Gross profit | $550,000 |
| Operating expenses | 150,000 |
| Income before interest and taxes | $400,000 |
| Interest expense | 25,000 |
| Income before taxes | $375,000 |
| Income tax expense | 150,000 |
| Net income | $225,000 |
Presented here are comparative balance sheets:
| December 31 | |||
| 2017 | 2016 | ||
| Cash | $52,000 | $90,000 | |
| Accounts receivable | 180,000 | 130,000 | |
| Inventory | 230,000 | 200,000 | |
| Prepayments | 15,000 | 25,000 | |
| Total current assets | $477,000 | $445,000 | |
| Land | $750,000 | $600,000 | |
| Plant and equipment | 700,000 | 500,000 | |
| Accumulated depreciation | (250,000) | (200,000) | |
| Total long-term assets | $1,200,000 | $900,000 | |
| Total assets | $1,677,000 | $1,345,000 | |
| Accounts payable | $130,000 | $148,000 | |
| Other accrued liabilities | 68,000 | 63,000 | |
| Income taxes payable | 90,000 | 110,000 | |
| Total current liabilities | $288,000 | $321,000 | |
| Long-term bank loan payable | $350,000 | $300,000 | |
| Common stock | $550,000 | $400,000 | |
| Retained earnings | 489,000 | 324,000 | |
| Total stockholders' equity | $1,039,000 | $724,000 | |
| Total liabilities and stockholders' equity | $1,677,000 | $1,345,000 | |
Other information is as follows:
Dividends of $60,000 were declared and paid during the year.
Operating expenses include $50,000 of depreciation.
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 year's results. She is very impressed with the profit margin of 18% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $50,000.
Required:
1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
| Balances | Cash Inflows (Outflows) | |||||
| Accounts | 12/31/17 | 12/31/16 | Changes | Operating | Investing | Financing |
| Cash | $ | $ | $ | $ | $ | $ |
| Accounts Receivable | ||||||
| Inventory | ||||||
| Prepayments | ||||||
| Land | ||||||
| Plant and Equipment | ||||||
| Accumulated Depreciation | ||||||
| Accounts Payable | ||||||
| Other Accrued Liabilities | ||||||
| Income Taxes Payable | ||||||
| Long-Term Bank Loan Payable | ||||||
| Common Stock | ||||||
| Retained Earnings | ||||||
| Net Income | ||||||
| Totals | $ | $ | $ | $ | $ | $ |
| Net increase (decrease) in cash | $ | |||||
2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section. Use the minus sign to indicate cash payments, cash outflows, or decreases in cash.
| Peoria Corp. | |
| Statement of Cash Flows | |
| For the Year Ended December 31, 2017 | |
| Cash Flows from Operating Activities | |
| $ | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
| $ | |
| Cash Flows from Investing Activities | |
| $ | |
| $ | |
| Cash Flows from Financing Activities | |
| $ | |
| $ | |
| $ | |
| Cash balance, December 31, 2016 | |
| Cash balance, December 31, 2017 | $ |
3. During the year Peoria experienced a decrease in cash at the end of the year due to
Could you please help me in the following questions. Could youplease take a screenshot of the final cash flow statement etc.Cheers
Regards
Adam
Statement of Cash Flows
You are provided the following financial information for TomHill Form Works, a company specialising in the production ofmoon-sized Imperial battle stations:
Tom HillForm Works
COMPARATIVE BALANCE SHEETS
AS AT 30th JUNE
2015 | 2014 | |||
$'000's | $’000's | |||
Current Assets | ||||
Cash on Hand | 35 | 12 | ||
Cash at Bank | 209 | 98 | ||
Accounts Receivable (net) | 58 | 54 | ||
Inventory | 310 | 330 | ||
Prepaid Expenses | 35 | 647 | 33 | 527 |
Non-Current Assets | ||||
Planet destroying Laser | 840 | 760 | ||
less Acc. Depreciation | 440 | 400 | 408 | 352 |
Buildings | 80 | 180 | ||
Total Assets | 1 127 | 1 059 | ||
Current Liabilities | ||||
Bank Overdraft | 20 | - | ||
Accounts Payable | 64 | 80 | ||
Accrued Stormtroopers wages | 63 | 89 | ||
Loan | 12 | 159 | - | 169 |
Non-Current Liabilities | ||||
Loan | 18 | - | ||
Total Liabilities | 177 | 169 | ||
Net Assets | 950 | 890 | ||
Equity | ||||
T.Hill, Capital | 950 | 890 | ||
Tom Hill Form Works
INCOME STATEMENT
FOR THE YEAR ENDED 30th JUNE2015
$'000's | |||||
Net Sales | 1 990 | ||||
COS | 1 300 | ||||
Less: Discount received | 5 | 1 295 | |||
Gross Profit: | 695 | ||||
Other Revenue: | |||||
Gain on sale of building | 60 | ||||
Interest received | 8 | ||||
763 | |||||
Expenses: | |||||
Selling & Admin Expense | 517 | ||||
Doubtful Debts Expense | 9 | ||||
Interest Expense | 12 | 538 | |||
Profit | 225 | ||||
Additional Information:
Selling & Admin Expense includes depreciation expense of$32,000.
The owner T.Hill, contributed $20,000 during the year
A new planet destroying laser was purchased by extending theloan, and paying the balance in cash
A building which had originally cost $100,000 was sold for$160,000 cash, making the business a gain of $60,000
REQUIRED:
Answer this question on the pro formaprovided
a. Using the template provided below, prepare a statement ofcash flows. Show all calculations on the proforma.
b. The owner of Tom Hill Form Works can’t understand why the cash flowfrom operations is so different to the profit figure. As he has atendency to react quite badly to negativenews, carefully explain to Mr Hill at least two ofthe factors that may be causing thisdifference.
c. Explain what information is provided by a Statement of Cash Flowthat is not provided by the other General Purpose Financial Reportsyou have been introduced to in this unit (Income Statement,Statement of Changes in Equity & BalanceSheet)?
Tom Hill Form Works
Cash Flow Statement
FOR THE YEAR ENDED 30thJUNE 2015
$’000 | $’000 | ||
Cash Flows from Operating Activities | |||
Receipts from customers | |||
Payments to suppliers & employees | |||
Cash generated by operations | |||
Interest received | |||
Interest paid | |||
Cash Flows from Investing Activities | |||
Proceeds from sale of buildings | |||
Payment for Laser | |||
Cash Flows from Financing Activities | |||
Contribution by owner | |||
Drawings | |||
Net increase / decrease in cash held | |||
Cash at the beginning of the year | |||
Cash at the end of the year |
ALL WORKINGS MUST BE PRESENTED BELOW OR THE CASHFLOWSTATEMENT WILL RECEIVE NO MARKS
This term you have learned to understand a company’s financial story using the language of accounting. The recording and reporting of information is essential to decision makers and other users of financial information; numbers on the various financial statements are used to help further understand the financial condition of the business. This process is known as financial ratio analysis and allows us to analyze the company’s financial position in relation to other organizations in the industry. In this final assignment, you will apply the concepts you have learned throughout the term to perform financial statement analysis and to offer some recommendations.
Assume that you are a health care consultant hired by the Dependable DME Company. DME is Durable Medical Equipment and includes all equipment that benefits patients who have certain medical conditions. The owner of the company, David Smith, is interested in applying for a loan to expand his business; he desires to open a second location in another city. He is preparing to apply to a local bank for a loan.
The bank will base its decision on the following averages for the DME industry:
| Ratio | Industry Average |
| Current ratio | 1.50 |
| Quick ratio | 0.80 |
| Receivables turnover ratio | 18.0 |
| Inventory turnover ratio | 20.0 |
| Debt to assets ratio | 0.56 |
| Profit margin | 10.25% |
The balance sheet data for Dependable DME Company follows:
| December 31, 2017 | December 31, 2016 | |
| Cash | $75,000 | $60,000 |
| Accounts receivable | 40,000 | 20,000 |
| Inventory | 30,000 | 20,000 |
| Prepaid insurance | 5,000 | 5,000 |
| Total current assets | 140,000 | 105,000 |
| Property and equipment | 600,000 | 550,000 |
| Accumulated depreciation | 140,000 | 110,000 |
| Total property and equipment | 460,000 | 440,000 |
| Total assets | $600,000 | $545,000 |
| Accounts payable | $60,000 | $60,000 |
| Other current liabilities | 40,000 | 45,000 |
| Total current liabilities | 100,000 | 105,000 |
| Bonds payable | 150,000 | 150,000 |
| Total liabilities | 250,000 | 255,000 |
| Common stock | 250,000 | 250,000 |
| Retained earnings | 100,000 | 40,000 |
| Total stockholders’ equity | 350,000 | 290,000 |
| Total liabilities and stockholders’ equity | $600,000 | $545,000 |
The income statement data for Dependable DME Company follows:
| Sales | $600,000 |
| Cost of goods sold | 350,000 |
| Gross profit | $250,000 |
| Operating expenses | 100,000 |
| Operating income | $150,000 |
| Interest expense | 25,000 |
| Income before taxes | $125,000 |
| Income tax expense | 65,000 |
| Net income | $60,000 |
Required:
Calculate the following six (6) ratios: Current Ratio, Quick Ratio, Receivables Turnover Ratio, Inventory Turnover Ratio, Profit Margin Ratio and Debt to Assets Ratio. Be sure to show the actual calculation as well as your final answer.
You are only required to calculate the ratios for 2017; however, for two of the ratios (Receivables Turnover Ratio and Inventory Turnover Ratio), you will need data from 2016 for the formula. When calculating the Quick Ratio, please note that Short-Term Investments are $0 in this scenario. (24 points; 4 points for each ratio calculation)
Below each ratio, comment on the interpretation of the ratio. In other words, what does the result tell you, specifically? (8 points)
Based upon the industry averages upon which the bank relies, should they approve the loan to Mr. Smith? Why or why not? (7 points)
In one-half page, comment on what financial aspect of Dependable DME Company looks good and where can Mr. Smith make some improvements. Specifically identify at least two recommendations to Mr. Smith that can be made to improve the financial position of his business. (8 points)