Continuing the example scenario created earlier in this chapter, the president asks you to determine cash flow from profit (net income) in 2007. In other words, he wants to know how much the business’s cash balance increased from making profit in the year. Based on the information in its comparative balance sheet and its statement of changes in stockholders equity, determine the business’s cash flow from profit for 2007. Did its cash balance increase $405,000, the same amount as net income? Or, did cash increase a different amount? Did cash decrease as the result of the company’s profit-making activities? (It’s possible.)
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Balance Sheets at Year-Ends 2006 and 2007 |
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Assets |
2006 |
2007 |
Changes |
|
Cash |
$700,000 |
$901,000 |
$201,000 |
|
Accounts Receivable |
$500,000 |
$535,000 |
$35,000 |
|
Inventory |
$780,000 |
$825,000 |
$45,000 |
|
Prepaid Expenses |
$110,000 |
$125,000 |
$15,000 |
|
Current Assets |
$2,090,000 |
$2,386,000 |
|
|
Property, Plant, & Equipment |
$2,450,000 |
$2,875,000 |
$425,000 |
|
Accumulated Depreciation |
($685,000) |
($876,000) |
($191,000) |
|
Cost Less Depreciation |
$1,765,000 |
$1,999,000 |
|
|
Total Assets |
$3,855,000 |
$4,385,000 |
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|
Liabilities & Owners’ Equity |
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|
Accounts Payable |
$350,000 |
$385,000 |
$35,000 |
|
Accrued Expenses Payable |
$165,000 |
$205,000 |
$40,000 |
|
Short-term Notes Payable |
$500,000 |
$625,000 |
$125,000 |
|
Current Liabilities |
$1,015,000 |
$1,215,000 |
|
|
Long-term Notes Payable |
$1,000,000 |
$1,125,000 |
$125,000 |
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Owners Equity: |
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Capital |
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Statement of Changes in Stockholders’ Equity |
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|
Capital Stock |
Retained Earning |
Total Owners’ Equity |
|
|
Balance at end of 2005 |
$750,000 |
$922,000 |
$1,672,000 |
|
Net Income – 2006 |
$318,000 |
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|
Cash Dividends – 2006 |
($150,000) |
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|
Balance at end of 2006 |
$750,000 |
$1,090,000 |
$1,840,000 |
|
Capital Stock Issue |
$50,000 |
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|
Net Income – 2007 |
$405,000 |
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|
Cash Dividends – 2007 |
($250,000) |
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|
Balance at end of 2007 |
$800,000 |
$1,245,000 |
$2,045,000 |