Statement of cash flows Vincent Fairfield, CEO of MetroAir, sat at his desk, examining the company”s latest financial statements. “This just doesn”t make sense to me,” Vincent thought. “We”re reporting $1,662,015 in net income, yet our Cash balance decreased by over $350,000. With these results, I would think the Cash balance should go up by at least $1,000,000.”
MotroAir
Income Statement
For the Year Ended December 31, 2010
|
Sales |
$78,555,000 |
|
Cost of goods sold |
58,146,480 |
|
Gross profit |
20.408.520 |
|
Selling expense |
5,168,505 |
|
Administrative expense |
3.814.6W |
|
Salaries expense |
7,408,490 |
|
Depreciation expense |
1,016,835 |
|
Interest expense |
625,725 |
|
Income before taxes |
2.374,305 |
|
Tax expense |
712,290 |
|
Net income |
$ 1,662,015 |
MetroAir
Balance Sheets
As of December 31
|
|
2010 |
2009 |
|
Cash |
5 266,293 |
$ 631,710 |
|
Accounts receivable, net |
9,355495 |
8751,435 |
|
Inventories |
9,605,580 |
8,206,635 |
|
Other assets |
691.380 |
359640 |
|
Total current assets |
19918,935 |
17,949,420 |
|
Machinery and equipment, net |
8,142,870 |
9009.705 |
|
Total assets |
$28,061,805 |
$26,959,125 |
|
Accounts payable |
$ 6.624.030 |
$ 6.675,210 |
|
Accrued expenses |
563,371 |
1,023,738 |
|
Salaries payable |
615,940 |
595,380 |
|
Interest payable |
58,143 |
55,412 |
|
Income taxes payable |
63,781 |
59,860 |
|
Short-term debt |
2. 175.00 |
1,950000 |
|
Total current liabilities |
10,100,265 |
10,359,600 |
|
Long.term debt |
4.2C0000 |
4.500,000 |
|
Total liabilities |
14,303,265 |
14,859.600 |
|
Common stock |
3.150= |
3.150,000 |
|
Retained earnings |
10,611.540 |
8,949,525 |
|
Total stockholders” equity |
13,761,540 |
12.099,525 |
|
Total liabilities and stockholders” equity |
$28,061,805 |
$26,959,125 |
Required
- Prepare Metro Air”s statement of cash flows using either the indirect or the direct method, as specified by your professor. During the year, the company purchased equipment, issued short-term debt, and retired long-term debt.
- Prepare a memo to Vincent explaining why he should not necessarily expect an increase in cash when the company reports net income. Be specific and include any issues that should cause Vincent concern.