Search in Document OFF Home InsertDesign Layout References Mailings Review> Shar
ID: 2406455 • Letter: S
Question
Search in Document OFF Home InsertDesign Layout References Mailings Review> Share Times New R | ? | | 12 | ? | | A-1 A? | | A Paste Paragraph Styles Intermediate Accounting Project ame Bailey Corp. just completed the most profitable year in its 25-year history Reported earnings of $1,020,000 on sales of S8,000,000 resulted in a very healthy profit margin of 12.75%. Each year before releasing the financial statements, the board of directors meets to decide on the amount of dividends to declare for the year. For each of the past nine years, the company has declared a dividend of $1 per share of common stock, which has been paid on January 15 of the following year Presented here is the income statement for the year and the comparative balance sheets as of the end of the last two years. For the Year Ended ecembe $8,000,000 4,500,000 $3,500,000 1450,000 $2,050,000 350,000 $1,700,000 680,000 Sales revenue Cost of goods sold Operating expenses Interest expense Income tax expense (40%) Gross profit Income before interest and taxes Income before taxes Net income Page 1 of 3 602 words E ?] F 102% ocusExplanation / Answer
The Bailey Corp
The Statement of Cash Flows
For the Year ended December 31, 2011
The Direct Method
In $
In $
The Cash Flows from Operating Activities
The Collection from customers
7,950,000*
The Payment for inventory
(4,580,000)**
The Cash paid for operating expenses
(1,025,000)***
The Operating cash flows before income taxes
2,345,000
The Income Taxes Paid
(610,000)****
The Net cash provided by operations
1,735,000
The Cash Flows from Investing Activities
The Cash paid for purchase of land
(1,055,000)
The Cash paid for purchase of equipment
(1,700,000)
Receipts from sale of investments
400,000
The Net cash used in investing activities
(2,355,000)
The Cash Flows from Financing Activities
The Cash received from issuance of common stock
500,000
The Cash received from issuance of bonds payable
700,000
The Cash paid for interest expense
(350,000)
Dividends paid
(200,000)
The Cash provided by financing activities
650,000
Net increase in cash
30,000
The Cash, December 31 2010
450,000
The Cash, December 31 2011
480,000
Accounts Receivable:
The Debit
The Credit
Balance
Beginning
200,000
Sales
8,000,000
8,200,000
Cash ( Balancing Figure)
7,950,000*
Ending
250,000
Inventory
The Debit
The Credit
Balance
Beginning
600,000
Accounts Payable ( Balancing Figure)
4,650,000
Cost of Goods Sold
4,500,000
Ending
750,000
Accounts Payable
The Debit
The Credit
Balance
Beginning
280,000
Inventory
4,650,000
4,930,000
Cash ( Balancing Figure)
4,580,000**
Ending
350,000
Cash operating expenses = Operating Expenses - Depreciation Expense - Amortization Expense = $ 1,450,000 - $ 250,000 - $ 100,000 = $ 1,100,000
Cash paid for operating expenses :
Cash Operating Expenses
1,100,000
Add: Beginning accrued liabilities
225,000
Add : Ending prepaid expenses
60,000
Less: Ending accrued liabilities
(285,000)
Less: Beginnning prepaid expenses
(75,000)
Cash paid for operating expenses
1,025,000***
Income Taxes Payable
Debit
Credit
Balance
Beginning
100,000
Income Tax Expense
680,000
Cash ( Balancing Figure)
610,000****
Ending
170,000
While the company earned $ 1,020,000 in the net income during 2011, the increase in cash has been a very modest $ 30,000. The company does not have any free cash flow, as the cash generated from its operations is far less than its capex needs. Therefore, given that the company is in the expansion mode (and that should generate shareholder value), it should skip dividends for the current year. If dividends were to be declared, they would be needed to be paid by January 15 2012. The company is not sitting on idle cash. And I do not think that the shareholders would be complaining.
The Bailey Corp
The Statement of Cash Flows (Partial)
For the Year Ended December 31, 2011
Indirect Method
In $
In $
The Cash Flows from Operating Activities
Income before taxes
1,700,000
Adjustments to reconcile net income with net operating cash flows
Depreciation Expense
250,000
Amortization Expense
100,000
Interest Expense
350,000
Operating profit before working capital changes
2,400,000
Increase in accounts receivable
(50,000)
Increase in inventory
(150,000)
Decrease in prepaid expenses
15,000
Increase in accounts payable
70,000
Increase in other accrued liabilities
60,000
(55,000)
Operating cash flows before income taxes
2,345,000
Income taxes paid
(610,000)
The Net cash provided by operations
1,735,000
In $
In $
The Cash Flows from Operating Activities
The Collection from customers
7,950,000*
The Payment for inventory
(4,580,000)**
The Cash paid for operating expenses
(1,025,000)***
The Operating cash flows before income taxes
2,345,000
The Income Taxes Paid
(610,000)****
The Net cash provided by operations
1,735,000
The Cash Flows from Investing Activities
The Cash paid for purchase of land
(1,055,000)
The Cash paid for purchase of equipment
(1,700,000)
Receipts from sale of investments
400,000
The Net cash used in investing activities
(2,355,000)
The Cash Flows from Financing Activities
The Cash received from issuance of common stock
500,000
The Cash received from issuance of bonds payable
700,000
The Cash paid for interest expense
(350,000)
Dividends paid
(200,000)
The Cash provided by financing activities
650,000
Net increase in cash
30,000
The Cash, December 31 2010
450,000
The Cash, December 31 2011
480,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.