is ui ven. 4.10. All Wired is a marketing services firm that creates advertising

Question

is ui ven. 4.10. All Wired is a marketing services firm that creates advertising copy for clients and places the advertising in various mass media. Accounts receivable represents amounts owed by clients, and accounts payable represent amounts payable to various media. All Wired has purchased marketing services firms in recent years. The data for All Wired for the last three years appear as follows (amounts in millions) 2016 2014 $279 164 238 2015 Net Income Depreciation and Amortization Expense Increase (Decrease) in Accounts Receivable Increase (Decrease) in Inventories Increase (Decrease) in Prepayments Increase (Decrease) in Accounts Payable Increase (Decrease) in Other Current Liabilities Acquisition of Property, Plant, and Equipment Acquisition of Investments in Securities (noncurrent) Dividends paid Long-term debt issued Common stock Issued (Reacquired) $499 226 514 98 125 277 420 150 885 $363 196 648 13 (10) 786 278 130 643 64 330 70 122 104 208 (252) Required: (a) Prepare a comparative statement of cash flows for All Wired for the three years. Use (b) Discuss the relation between net income and cash flow from operations and the pat- the indirect method of computing cash flow from operations. tern of cash flows from operating, investing, and financing activities during the three years

Explanation / Answer

Part A. Comparitive cash flow statements for all 3 years:

Part B. Relation between Net income and cash flow is directly related as only items of working capital nature are there which directly impacts the profit of the company. Whereas, Investing activity includes item for which investment made for eg. fixed asset purchased. And Financing activity contains item of Loan and equity related purchased or diisbursed.

Particulars 2016 2015 2014 Income From Operating Activities Net Income 499 363 279 Add: Deprecation Expense 226 196 164 Less: Increase in Account Receivable -514 -648 -238 Less: Increase in Inventory -98 -13 -35 Less: Increase in Prepayments -125 10 -64 Add: Increase in Accounts Payable 277 786 330 Add: Increase in Current liability 420 278 70 685 972 506 Income From Operating Activities Acquisition of Property plant -150 -130 -115 Investment in Secuirty -885 -643 -469 -1035 -773 -584 Income From Financing Activities Dividend received 122 104 88 Long term debt issued 599 83 208 Common stock reacquired -187 -252 42 534 -65 338

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