NOTE : Please show work and reasoning. Smuk had net sales of 1,311 million from

Question

NOTE : Please show work and reasoning.

Smuk had net sales of 1,311 million from selling products for the year ending april 30, 2003. The income statement showed operating expenses of 1,147 million, other expenses of 9 million, and income taxes of 59 million. Assume depreciation and amortization affect operating expenses and that other noncash items affect other expenses. The company's statement of cash flows, prepared under the indirect method, also contained the following items (in millions) :

Issuance of common stock 7
Dividends paid (34)
Additions to property, plant, and equipment (49)
Business acquired (11)
Disposal of property, plant, and equipment 7
NET INCOME 96
Depreciation and amortization 34
CHANGES IN OPERATING ASSETS AND LIABILITIES :
Trade receivables (43)
Inventories (12)
Accounts payable and accrued liabilities 56
Income taxes 23
Other 12

1. Prepare a statement of cash flows for Smuk using the direct method. Omit the schedule reconciling net income to net cash provided by operating activities.

2. Discuss the relation between operating cash flow and investing and financing needs.

Explanation / Answer

1. Direct method: Cash flow statement: Cash flow from operating activities: Cash collected grom customers (Sales) $1,311 Operating expenses(1147-34) ($1,113) Other expenses ($9) Income taxes ($59) Decrease in trade receivables $43 decrease in inventories $12 Increased in accounts payable $56 Increase in income tax payable $23 Oter liabilities increase $12 Net cash flow from operating activities: $276 Cash flow from Investing activities: Property, plant, equipment purchase ($49) Aquired business ($11) Sale of property, plant, equipment $7 Net cash flow from Investing activities: $223 Cash flow from Financing activities: Issue of common stock $7 Devidends paid ($34) Net cash flow from Financing activities: $196 Add: Opening cash balance Closing cash balance Indirect method: Cash flow statement: Cash flow from operating activities: Net Income $96 Depreciation & Ammortization $34 Decrease in trade receivables $43 decrease in inventories $12 Increased in accounts payable $56 Increase in income tax payable $23 Oter liabilities increase $12 Net cash flow from operating activities: $276 Cash flow from Investing activities: Property, plant, equipment purchase ($49) Aquired business ($11) Sale of property, plant, equipment $7 Net cash flow from Investing activities: $223 Cash flow from Financing activities: Issue of common stock $7 Devidends paid ($34) Net cash flow from Financing activities: $196 Add: Opening cash balance Closing cash balance Note: Other 12 is considered as other current liabilities increased. Income tax 23 is considered as income tax payable increased. 2. Net cash flow from operating activities is $276, it is used in Investing activities of purchaseing property, plant, and equipment $49 & business aquiring $9, and Financing activities of payment of dividends $34. Thank you...... Cash flow statement: Cash flow from operating activities: Cash collected grom customers (Sales) $1,311 Operating expenses(1147-34) ($1,113) Other expenses ($9) Income taxes ($59) Decrease in trade receivables $43 decrease in inventories $12 Increased in accounts payable $56 Increase in income tax payable $23 Oter liabilities increase $12 Net cash flow from operating activities: $276 Cash flow from Investing activities: Property, plant, equipment purchase ($49) Aquired business ($11) Sale of property, plant, equipment $7 Net cash flow from Investing activities: $223 Cash flow from Financing activities: Issue of common stock $7 Devidends paid ($34) Net cash flow from Financing activities: $196 Add: Opening cash balance Closing cash balance

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