ACCT 210 Problems, Fall 2009

45 Minutes, Strong BLEM 13.6A RY TECHNOLOGIES a. 21st CENTURY TECHNOLOGIES Statement of Cash Flows For the Year Ended December 31, 2007 Cash flows from operating activities: Cash received from customers (1 ### Interest received (2) 42,000 Cash provided by operating activi ### Cash paid to suppliers and emplo ### Interest paid (4) (38,000) Income taxes paid (5) (114,000) Cash disbursed for operating acti ### Net cash flow from operating acti ### Cash flows from investing activities: Purchases of marketable securiti $(60,000) Proceeds from sales of marketable 72,000 Loans made to borrowers (44,000) Collections on loans 28,000 Cash paid to acquire plant assets (500,000) Proceeds from sales of plant asse 24,000 Net cash used in invest (480,000) Cash flows from financing activities: Proceeds from short-term borrow $ 82,000 Payments to settle short-term de (92,000) Proceeds from issuing common s 180,000 Dividends paid (120,000) Net cash provided for 50,000 Net increase (decrease) in cash and cash equivalents $(80,000) Cash and cash equivalents, beginning of year 244,000 Cash and cash equivalents, end of year ### Supporting computations: (1) Cash received from c Net sales ### Less: increase in accounts recei 60,000 Cash received from customers ### (2) Interest received: $ 40,000 Interest revenue 2,000 Interest received $ 42,000 BLEM 13.6A RY TECHNOLOGIES a. (continued) (3) Cash paid to suppliers and empl Cash paid for purchases of mer Cost of goods sold ### Less: Decrease in inv 60,000 Net purchases ### Add: Decrease in acco 16,000 Cash paid for purcha ### Cash paid for operating expens Operating expenses ### Less: Depreciation (a 150,000 Subtotal ### Add: Increase in prep 6,000 8,000 Cash paid for operati ### Cash paid to suppliers and emp ($1,576,000 + $1,104,0 ### (4) Interest paid: Interest expense $ 42,000 Less: Increase in accr 4,000 Interest paid $ 38,000 (5) Income taxes paid: Income tax expense ### Add: Decrease in inco 14,000 Income taxes paid ### (6) Proceeds from sales of marketabl Cost of marketable sec to the Marketable Se $ 38,000 Add: Gain reported on s 34,000 Proceeds from sales o $ 72,000 (7) Proceeds from sales of plant ass $ 36,000 Add: Decrease in accrued interest receivable Add: Decrease in accrued liab. for operating expenses Book value of plant assets sold (paragraph Less: Loss reported on 12,000 Proceeds from sales o $ 24,000 (8) Proceeds from issuing capital st Amounts credited to C $ 20,000 Add: Amounts credited Capital account 160,000 Proceeds from issuing capital st ### BLEM 13.6A CHNOLOGIES (concluded) (1) (2) The primary reason why cash provided by operating activities substantially exceeded net income was the company’s $150,000 in depreciation expense. Depreciation reduces net income, but does The primary reason for the net decrease in cash was the large cash outlays for investing activities— specifically, the cash paid to acquire plant assets. To the extent that receivables increase, the company has not yet collected cash from its customers. Thus, if the growth in receivables had been limited to $10,000, instead of $60,000, the company would have collected an additional $50,000 from its customers. Thus, the net decrease in cash (and cash 60 Minutes, Strong PROBLEM 13.7A SATELLITE 201 a. SATELLITE 2010 Worksheet for a Statement of Cash Flows For the Year Ended December 31, 2007 Balance sheet effects: Effect of Transactions Beginning Debit Credit Balance Changes Changes Assets Cash and cash equivalents 80,000 (x) Accounts receivable 100,000 (3) 750,000 Plant and equipment (net of accumulated depreciation) 600,000 (6) ### (2) Totals 780,000 Liabilities & Owners' Equity Notes payable (short-term) 0 (7) Accounts payable 30,000 (4) Accrued expenses payable 45,000 (5) 13,000 Notes payable (long-term) 390,000 (6) Capital stock (no par) 200,000 (8) Retained earnings 115,000 (1) Totals =SUM(f10.f 780,000 ### Cash effects: Sources Uses Operating activities: Net income (1) 440,000 Depreciation expense (2) 147,000 Increase in accounts receivable (3) Increase in accounts payable (4) 33,000 Decrease in accrued expenses payable (5) Investing activities: Cash paid for plant assets (6) Financing activities: Short-term borrowing (7) ### Issuance of capital stock (8) 500,000 Subtotals ### Net decrease in cash (x) 43,000 Totals ### BLEM 13.7A TELLITE 2010 (continued) b. SATELLITE 2010 Statement of Cash Flows For the Year Ended December 31, 2007 Cash flows from operating activities: Net income ### Add: Depreciation expense 147,000 Increase in accounts 33,000 Subtotal ### Less: Increase in accounts ### Decrease in accrued 13,000 763,000 Net cash provided by (used in) operating activities ### Cash flows from investing activities: Cash paid to acquire plants assets (see sch ### Net cash used for investing activities ### Cash flows from financing activities: Short-term borrowing from bank ### Issuance of capital stock 500,000 Net cash provided by financing activities ### Net increase (decrease) in cash $(43,000) Cash and cash equivalents, Dec. 31, 2006 80,000 Cash and cash equivalents, Dec. 31, 2007 $ 37,000 Supplementary Schedule: Noncash Investing and Financing Activities Purchase of plant assets ### Less: Portion financed by issuing long-term notes payable 350,000 Cash paid to acquire plant assets ### BLEM 13.7A TELLITE 2010 (concluded) c. d. Satellite 2010’s credit sales resulted in $750,000 in new receivables, which were uncollected as of year-end. These credit sales all were included in the computation of net income, but those that remained uncollected at year-end do not represent cash receipts. Therefore, the cash flow from operating activities was substantially below the amount of net Note to instructor: It is not uncommon for cash flows to lag behind a rising net income figure in a growing business. This is why many rapidly growing businesses find themselves “strapped for cash” to finance their Satellite 2010 does not appear headed for insolvency. First, the company has a $6 million line of credit, against which it has drawn only $1,450,000. This gives the company considerable debt-paying ability. Next, if Satellite 2010’s rapid growth continues, the company should not have difficulty issuing additional capital stock to investors as a means of raising cash. If a company is obviously successful, it usually is able to raise PROBLEM 13.7A SATELLITE 2010 ransactions Credit Ending Changes Balance 43,000 37,000 850,000 147,000 ### ### ### ### 33,000 63,000 32,000 350,000 740,000 500,000 700,000 440,000 555,000 ### ### Uses 750,000 13,000 ### ### ###