Problem 1 The balance sheets of the Midterm Retail Co., as of the end of fiscal

Question

Problem 1

The balance sheets of the Midterm Retail Co., as of the end of fiscal years 2004 and 2005 are as follows:

                                                            ~~~~~~Liabilities

Assets                         12/31/05          12/31/04          and OE                     12/31/05         12/31/04

Cash                $21,000          $13,000          A/P                             $13,000          $8,000

A/R                 25,000           18,000            Wages pay.                 15,000            10,000

Inventory       25,000            27,000            Taxes pay.                  1,000              2,000

Prepaid rent 3,000              0                      Long-term debt         50,000            45,000           

Equip. (net) 100,000         85,000            Owners’ equity          95,000            78,000

Total Assets $174,000       $143,000       Total                           $174,000      $143,000

The income statement for 2005 is as follows:*

Sales revenue                        $600,000

Cost of goods sold                 380,000

SG&A                                       105,000

Depreciation                          37,000

Tax expense                          5,000

Net income                             $73,000

*Note that there is no interest expense because long-term debt is interest free. (Good deal!)

The firm purchased long-term assets of $62,000 for the year, and sold old long-term assets with net book value of $10,000 for a price of $10,000. The firm paid a dividend of $56,000. It also issued $5,000 in new long-term debt.

Required

a.Calculate the firm’s cash flow from operations for 2005.

b.  Calculate the firm’s cash flow from investing activities for 2005.

c. How much cash did the firm pay to its suppliers during 2005?

Explanation / Answer

Cash Flow from operating activities:- Particular Amount Amount Net Income $73,000 Depreciation Expense $37,000 Less:Increase in account receivable $7,000 Add: Decrease in inventory $2,000 Less: Increase in Prepaid expense $3,000 Add: Increase in account payable $5,000 Add: Increase in wages payable $5,000 Less: Decrease in TaxPayable $1,000 Cash flow from operating activity (A) $111,000 Cash Flow from investing activity Cash paid for purchase of Asset ($62,000) Cash received for sale of asset $10,000 Cash flow from Investing Activity(B) ($52,000) Cash Flow From Financing Activity Issue of New Debt $5,000 Dividend Paid ($56,000) Cash flow from Financing Activity© ($51,000) Cash balance(A+B+C) $8,000

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