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Financial Accounting – Sample 2

Question IV – Cash Flow

The financial statements for Adam Company as of December 31 appear below.  Use this page for your calculations and prepare in good form a Statement of Cash Flow for 2013 on the next page (points 20).  Using your results, answer the questions on page 8.

 

Assets 2012 + - 2013
Cash 42,000 3500 38,500
Accounts Receivable 130,000 4000 126,000
Inventories 216,000 6000 222,000
Land 20,000 40000 60,000
Plant and Equipment 872,000 19000 891,000
Less: Accumulated Depreciation (472,000) -48000 (520,000)
Net Plant and Equipment 400,000 -29000 371,000
Total Assets 808,000 817,500
Liabilities and Shareholders’ Equity
Accounts payable 61,000 7000 68,000
Salaries payable 27,000 12000 15,000
Interest payable 9,500 2500 12,000
Long-term debt 234,000 9000 243,000
Common Stock 290,000 35000 325,000
Retained Earnings 186,500 32000 154,500
Total 808,000 817,500

Income Statement

Sales 1,451,000
Cost of goods Sold 936,000
Gross margin 515,000
Selling & Administration Expense 448,000
Interest expense 24,000
Tax expense 13,000
Net Income 30,000

 

Additional information:

  1. Expenditures on new Plant and Equipment for 2013 amounted to $60,000.
  2. Plant and Equipment sold during 2013 at book value of $27,000.
  3. Adam Company both paid and borrowed on Long-term debt during 2013

Statement of Cash Flow

Cash flow – Operations
Net Income 30000
Add: Depreciation 62000
Decrease in account receivables 4000
Increase in Inventories -6000
Increase in Accounts payable 7000
Decrease in Salaries payable -12000
Increase in Interest payable 2500
Cash from Operating Activities 87500
Investing Activities
Purchase of new plant -60000
Sale of Plant 27000
Purchase of land -40000
Cash used in Investing Activities -73000
Financing Activity
Increase in common stock 35000
Borrowed long term debt 9000
Dividends paid -62000
Cash used in Financing Activities -18000
Increase (decrease) in Cash -3500
Beginning Cash 42000
Ending Cash 38500

 

Gross value of plant sold = 872000 + 60000 – 891000 = 41000

Accumulated Depreciation on asset sold = 41000 – 27000 = 14000

Depreciation for the year = 520000 + 14000 – 472000 = 62000

Dividends = 186500 + 30000 – 154500 = 62000

 

Use only gross expenditures for Plant and Equipment and neglect an adjustment due to interest expense

Calculate Free Cash Flow (FCF) = Cash from Operating Activities – Capital Expenditures

=87500 – 73000 = 14500

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