ACC 340 Lecture Notes - Lecture 1: Cash Flow Statement, Sole Proprietorship, Retained Earnings

7. Consider theeffects of the independent transactions, a through i, on acompany’s balance sheet, income statement, statement of cash flows,and statement of stockholders’ equity.

a. The company purchasedinventory on credit.

b. The company sold allinventory purchased in transaction a) on credit (and formore than its cost).

c. The company collectedcash from customers from transaction b).

d. The company purchasedequipment with cash.

e. The company paid cash fora note payable that came due.

f. The company paidcash for interest on borrowings.

g. Wages were earned bycompany employees but not yet paid.

h. The company paid cash individends.

i. The companyreceived cash for the issuance of stock.

Complete the table below to explainthe effects and financial statement linkages. Use “+” to indicatethe account increases and “–” to indicate the account decreases (15pts).

Use the data from the following financial statements in thepopup​ window, LOADING... . The company paid interest expense of$18,500 for 2014 and had an overall tax rate of 40% for 2014. Findthe cash flow from assets for​ 2014, and break it into its three​parts: operating cash​ flow, capital​ spending, and change in networking capital.

ata Table

Foxboro Company%u2019s income statement for Year 2 follows:

Foxboro Company

Income Statement

Sales $ 710,000

Cost of goods sold 234,000

Gross margin 476,000

Selling and administrative expenses 218,000

Net operating income 258,000

Gain on sale of equipment 10,000

Income before taxes 268,000

Income taxes 80,400

Net income $ 187,600

Its balance sheet amounts at the end of Years 1 and 2 are asfollows:

Foxboro Company

Balance Sheet

Year 2 Year 1

Assets

Cash $ 143,900 $ 106,100

Accounts receivable 269,000 119,000

Inventory 318,000 270,000

Prepaid expenses 9,500 19,000

Total current assets 740,400 514,100

Plant and equipment 622,000 517,000

Accumulated depreciation 166,300 131,600

Net plant and equipment 455,700 385,400

Loan to Harker Company 47,000 0

Total assets

$ 1,243,100 $ 899,500

Liabilities and Stockholders' Equity

Accounts payable $ 310,000 $ 260,000

Accrued liabilities 46,000 59,000

Income taxes payable 85,900 80,500

Total current liabilities 441,900 399,500

Bonds payable 207,000 119,000

Total liabilities 648,900 518,500

Common stock 345,000 286,000

Retained earnings 249,200 95,000

Total stockholders' equity 594,200 381,000

Total liabilities and stockholders' equity $ 1,243,100 $ 899,500

Equipment that had cost $31,600 and on which there wasaccumulated depreciation of $11,000 was sold during Year 2 for$30,600. The company declared and paid a cash dividend during Year2. It did not retire any bonds or repurchase any of its ownstock.

Required:

1.

Using the indirect method, compute the net cash for operatingactivities for Year 2. (Negative amount should be indicated by aminus sign. Omit the "$" sign in your response.)

Net cash operating activities $

2.

Prepare a statement of cash flows for Year 2. (Amounts to bededucted should be indicated with a minus sign. Omit the "$" signin your response.)

Foxboro Company

Statement of Cash Flows

Operating activities:

$

Adjustments to convert net income to cash basis:

$

Net cash operating activities

Investing activities:

Net cash investing activities

Financing activities:

Net cash financing activities

Cash balance, beginning of year

Cash balance, end of year $

3.

Compute the free cash flow for Year 2.(Negative amount should beindicated by a minus sign. Omit the "$" sign in your response.)

Free cash flow $