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Example 1

Workshop One Practice Exercises
Example 1: Building an Income Statement
Tiger Enterprises maintains and sells vintage recording equipment, which are still popular with some artists. In 2019, the company earned $828,000 from sales, plus another $523,000 from service contracts. The cost of the equipment they sold during the year was $545,000. They also paid $450,000 in wages to their retail sales associates and technicians. The lease on their retail space was $38,000 for the year, and they had $14,000 in utilities and other expenses. Management salaries totaled $85,000 for the year, and depreciation on their office and retail equipment was 11,000. They paid $8,000 of interest on an outstanding credit line, which is currently extended to $85,000. The company's tax rate is 21%.
Complete the full Income Statement for Tiger Enterprises. What is the Net Income for this firm?
Use the space below to create your solution. If you get stuck, or when you are ready to check your answer, go to the next worksheet tab for the solution.
This is the practice problem file, provided in the assignment instructions October 2019

Ex # 1 Solution

Workshop One Practice Exercises
Example 1: Building an Income Statement
Tiger Enterprises maintains and sells vintage recording equipment, which are still popular with some artists. In 2019, the company earned $828,000 from sales, plus another $523,000 from service contracts. The cost of the equipment they sold during the year was $545,000. They also paid $450,000 in wages to their retail sales associates and technicians. The lease on their retail space was $38,000 for the year, and they had $14,000 in utilities and other expenses. Management salaries totaled $85,000 for the year, and depreciation on their office and retail equipment was 11,000. They paid $8,000 of interest on an outstanding credit line, which is currently extended to $85,000. The company's tax rate is 21%.
Complete the full Income Statement for Tiger Enterprises. What is the Net Income for this firm?
Check below for a detailed solution to this problem.
Remember the basic format of the Income Statement: Revenue - Expenses = Net Income
Output area:
These word problems can be difficult to follow. Start by organizing your information. Just make a list of the data given.
Tiger Enterprises You can then sort the information into the correct order:
Income Statement First Sales (Revenue), then Operating Expenses (leading to EBIT), then Interest (leading to EBT), and last Taxes (leading to Net Income).
For Year Ended Dec 31st, 2019
Product Sales Revenue $ 828,000 Note the two types of Sales here. Both forms of revenue (individually or combined) create the "top line" of the income statement.
Service Contract Revenue 523,000 It is not unusual for a company to have multiple forms of Revenue.
Total Revenue $ 1,351,000
Expenses:
Costs of Goods Sold $ 545,000 The terminology can be confusing for some students. It takes some getting used to terms like "Cost of Goods Sold"
Wages Expense 450,000 For this segment of the Income Statement, you are looking for Operating Expenses: Those costs that are related to the production of the company's goods and services.
Lease Expense 38,000
Utilities Expense 14,000 Take note one of the items listed in the narrative above, the credit line, was intentionally left off this Income Statement.
Management Salaries 85,000 These problems will often have distractors meant to test your understanding (trip you up).
Depreciation expense 11,000 The amount of the company's credit line would show up on the Balance Sheet, but not on the Income Statement.
Total Expenses 1,143,000 Only the interest payment shows as an expense on the Income Statement.
EBIT $ 208,000 EBIT (Earnings Before Interest and Taxes) is = Revenue - Operating Expenses. It is sometimes called "Op Profit" or "Operating Income".
Interest expense 8,000
EBT $ 200,000 EBIT - Interest = EBT (Earnings Before Taxes), which is sometimes called "Taxable Income". This is the amount that taxes are based off of.
Taxes (21%) 42,000 Taxes are applied to EBT (Taxable Income) after all other expenses have been paid.
Net income $ 158,000 Net Income is the "bottom line" after all expenses are subtracted from Revenue. It could be called "Net Profit".
This is the practice problem file, provided in the assignment instructions October 2019

Example 2

Workshop One Practice Exercises
Example 2: Building a Balance Sheet
As of January 31st, 2020, Coyote Company owes its suppliers $55,000 and owes its employees $14,000 in future wages. The company also has an outstanding short-term credit line due of $25,000. The company currently has $48,000 in cash on hand and is storing $154,700 of inventory. Its customers owe $82,000 for past purchases made on credit. Equipment worth $275,000, net of accumulated depreciation, is supporting the operation. The company also has an outstanding long-term loan of $154,000. Sales for the year was $847,000.
Complete the full Balance Sheet for Coyote Company. What is the Owner's Equity for this firm?
Use the space below to create your solution. If you get stuck, or when you are ready to check your answer, go to the next worksheet tab for the solution.
This is the practice problem file, provided in the assignment instructions October 2019

Ex # 2 Solution

Workshop One Practice Exercises
Example 2: Building a Balance Sheet
As of January 31st, 2020, Coyote Company owes its suppliers $55,000 and owes its employees $14,000 in future wages. The company also has an outstanding short-term credit line due of $25,000. The company currently has $48,000 in cash on hand and is storing $154,700 of inventory. Its customers owe $82,000 for past purchases made on credit. Equipment worth $275,000, net of accumulated depreciation, is supporting the operation. The company also has an outstanding long-term loan of $154,000. Sales for the year was $847,000.
Complete the full Balance Sheet for Coyote Company. What is the Owner's Equity for this firm?
Check below for a detailed solution to this problem.
Again to decipher this word problem, begin by organizing your information, identifying assets and liabilities.
Output area: Remember the basic structure of a Balance Sheet: Assets (left side) = Liabilities + Equity (right side)
Coyote Company The terminology used here requires you to interpret the meaning of the information above.
Balance Sheet For example, the value of the equipment, net of depreciation, is called "Net Fixed Assets" in accounting terminology.
January 31st, 2020 As another example, the money owed to suppliers is called "Accounts Payable".
Current Assets: Current Liabilities:
Cash $ 48,000 Accounts Payable $ 55,000 Remember the most liquid assets, like Cash, belong at the top of the Balance Sheet
Accounts Receivable 82,000 Wages Payable 14,000
Inventory 154,700 Credit Line 25,000
Total Current Assets $ 202,700 Total Current Liabilities $ 80,000
Net Fixed Assets 275,000 Long-Term Debt 154,000 Long-Term assets are sometimes shown net of depreciation, like here. In other cases, depreciation is split out separately.
Owner's Equity $ 243,700 Note this figure is not given! To find equity, you need to recognize Assets = Liabilities + Equity. Check out the formula here.
Knowing this must be the case, you can complete the rest of the Balance Sheet, first, then figure out what Equity must be.
Total Assets $ 477,700 Total Liabilities and Equity 477,700 The Balance Sheet must balance!
Take note again one of the items listed in the narrative above, Sales, was intentionally left off this template as a distraction item.
Sales would affect the income statement and cash flow, but would not appear on the Balance Sheet.
Your work may not be so "pretty", but try to organize the information in a clear, professional manner.
Being able to communicate complex financial information clearly is an important skill! You will get better with practice.
This is the practice problem file, provided in the assignment instructions October 2019

Example 3

Workshop One Practice Exercises
Example 3: Building a Sources and Uses Statement
A Balance Sheet for Cobra Corp. is given below:
Cobra Corporation
Balance Sheets
For Years Ended December 31st
2018 2019 Change
Cash $ 128,500 $ 76,700 $ (51,800)
Accounts receivable 43,200 84,500 41,300
Inventories 58,000 86,900 28,900
Total Current Assets 229,700 248,100 18,400
Equipment 158,000 256,400 98,400
Buildings and Land 528,000 589,000 61,000
Goodwill and Intangible Assets 98,000 94,000 (4,000)
Total Long-Term Assets 784,000 939,400 155,400
Total assets $ 1,013,700 $ 1,187,500 $ 173,800
Accounts Payable $ 83,500 $ 96,300 $ 12,800
Wages Payable 21,000 21,700 700
Income taxes payable 5,300 11,900 6,600
Total current liabilities 109,800 129,900 20,100
Long term debt 573,000 623,000 50,000
Total liabilities 682,800 752,900 70,100
Common stock 100,000 150,000 50,000
Retained earnings 230,900 284,600 53,700
Total shareholders’ equity 330,900 434,600 103,700
Total Liabilities and Equity $ 1,013,700 $ 1,187,500 $ 173,800
Complete a Sources and Uses Statement for Cobra Corp.
Use the space below to create your solution. If you get stuck, or when you are ready to check your answer, go to the next worksheet tab for the solution.
This is the practice problem file, provided in the assignment instructions October 2019

Ex # 3 Solution

Workshop One Practice Exercises
Example 3: Building a Sources and Uses Statement
A Balance Sheet for Cobra Corp. is given below:
Cobra Corporation
Balance Sheets
For Years Ended December 31st
2018 2019 Change
Cash $ 128,500 $ 76,700 $ (51,800)
Accounts receivable 43,200 84,500 41,300
Inventories 58,000 86,900 28,900
Total Current Assets 229,700 248,100 18,400
Equipment 158,000 256,400 98,400
Buildings and Land 528,000 589,000 61,000
Goodwill and Intangible Assets 98,000 94,000 (4,000)
Total Long-Term Assets 784,000 939,400 155,400
Total assets $ 1,013,700 $ 1,187,500 $ 173,800
Accounts Payable $ 83,500 $ 96,300 $ 12,800
Wages Payable 21,000 21,700 700
Income taxes payable 5,300 11,900 6,600
Total current liabilities 109,800 129,900 20,100
Long term debt 573,000 623,000 50,000
Total liabilities 682,800 752,900 70,100
Common stock 100,000 150,000 50,000
Retained earnings 230,900 284,600 53,700
Total shareholders’ equity 330,900 434,600 103,700
Total Liabilities and Equity $ 1,013,700 $ 1,187,500 $ 173,800
Complete a Sources and Uses Statement for Cobra Corp.
Check below for a detailed solution to this problem.
Cobra Corp.
Sources and Uses Statement
December 31st, 2019
Sources: Remember the basic rules:
Decrease in Cash $ 51,800 (1) An increase in any Asset or a decrease in any Liability or Equity is a USE of cash (like buying something or taking out a loan).
Decrease in Intangible Assets 4,000 (2) A decrease in any Asset or an increase in any Liability or Equity is a SOURCE of cash (like selling something or paying off a loan).
Increase in Accounts Payable 12,800
Increase in Wages Payable 700
Increase in Income Taxes Payable 6,600
Increase in Long-Term Debt 50,000
Increase in Common Stock 50,000
Increase in Retained Earnings 53,700
Total Sources 229,600 Sources and Uses Statements aren't used commonly in real-world practice.
However, they are an important first step towards putting together a Statement of Cash Flows.
They can also be insightful.
Uses:
Increase in Accounts Receivable 41,300 This Sources and Uses Statement reveals a simple story for this company.
Increase in Inventory 28,900 The company borrowed a significant amount of money, plus raised additional new equity from its shareholders.
Increase in Equipment 98,400 Nevertheless, its cash declined. Why?
Increase in Buildings and Land 61,000 Because it spent heavily on new equipment, buildings, and land.
Total Uses 229,600
If this Statement is created properly, the Sources and Uses will equal!
This is the practice problem file, provided in the assignment instructions October 2019

Example 4

Workshop One Practice Exercises
Example 4: Building a Statement of Cash Flows
Balance Sheets and an Income Statement for Cobra Corporation are provided below (in $ thousands):
Cobra Corporation Cobra Corporation
Balance Sheet ($ thousands) Income Statement ($ thousands)
December 31st For Year Ended December 31st, 2019
2018 2019 Change
Cash $ 128,500 $ 76,700 $ 76,700 $ (51,800) Net Sales $ 2,153,000
Accounts Receivable 43,200 84,500 84,500 41,300 Cost of Goods Sold 1,230,400
Inventories 58,000 86,900 86,900 28,900 Selling and Administrative Costs 183,000
Total Current Assets 229,700 248,100 18,400 Wages Expense 316,000
Depreciation 98,700
Equipment 178,000 256,400 317,100 139,100 EBIT (Operating Income) 324,900
Buildings and Land 550,000 589,000 669,000 119,000
Goodwill and Intangible Assets 98,000 94,000 94,000 (4,000) Interest Expense 67,500
Less: Accumulated Depreciation 42,000 140,700 98,700 Other Non-Operating Expenses 15,900
Total Fixed Assets 784,000 939,400 155,400 EBT (Taxable Income) 241,500
Total Assets 1,013,700 1,187,500 173,800 Income Taxes 162,900
Net Income 78,600
Accounts Payable $ 83,500 $ 96,300 $ 96,300 12,800
Wages Payable 21,000 21,700 21,700 700 Dividends Paid 24,900
Income Taxes Payable 5,300 11,900 11,900 6,600 Addition to Retained Earnings 53,700
Total Current Liabilities 109,800 129,900 20,100
Long Term Debt 573,000 623,000 623,000 50,000
Common Stock 100,000 150,000 150,000 50,000
Retained Earnings 230,900 284,600 284,600 53,700
Shareholders’ Equity 330,900 434,600 103,700
Total Liabilities and Equity 1,013,700 1,187,500 173,800
Create a Cash Flow Statement for Cobra Corporation.
Use the space below to create your solution. If you get stuck, or when you are ready to check your answer, go to the next worksheet tab for the solution.
This is the practice problem file, provided in the assignment instructions October 2019

Ex # 4 Solution

Workshop One Practice Exercises
Example 4: Building a Statement of Cash Flows
Balance Sheets and an Income Statement for Cobra Corporation are provided below (in $ thousands):
Cobra Corporation Cobra Corporation
Balance Sheet ($ thousands) Income Statement ($ thousands)
December 31st For Year Ended December 31st, 2019
2018 2019 Change
Cash $ 128,500 $ 76,700 $ 76,700 $ (51,800) Net Sales $ 2,153,000
Accounts Receivable 43,200 84,500 84,500 41,300 Cost of Goods Sold 1,230,400
Inventories 58,000 86,900 86,900 28,900 Selling and Administrative Costs 183,000
Total Current Assets 229,700 248,100 18,400 Wages Expense 316,000
Depreciation 98,700
Equipment 178,000 256,400 317,100 139,100 EBIT (Operating Income) 324,900
Buildings and Land 550,000 589,000 669,000 119,000
Goodwill and Intangible Assets 98,000 94,000 94,000 (4,000) Interest Expense 67,500
Less: Accumulated Depreciation 42,000 140,700 98,700 Other Non-Operating Expenses 15,900
Total Fixed Assets 784,000 939,400 155,400 EBT (Taxable Income) 241,500
Total Assets 1,013,700 1,187,500 173,800 Income Taxes 162,900
Net Income 78,600
Accounts Payable $ 83,500 $ 96,300 $ 96,300 12,800
Wages Payable 21,000 21,700 21,700 700 Dividends Paid 24,900
Income Taxes Payable 5,300 11,900 11,900 6,600 Addition to Retained Earnings 53,700
Total Current Liabilities 109,800 129,900 20,100
Long Term Debt 573,000 623,000 623,000 50,000
Common Stock 100,000 150,000 150,000 50,000
Retained Earnings 230,900 284,600 284,600 53,700
Shareholders’ Equity 330,900 434,600 103,700
Total Liabilities and Equity 1,013,700 1,187,500 173,800
Create a Cash Flow Statement for Cobra Corporation.
Check below for a detailed solution to this problem.
Input / Output area: Unlike the previous problems, you are first given the Balance Sheet and Income Statement. You need these statements to complete the Cash Flow Statement.
In your mini-case assignment, however, you will have to first complete the Balance Sheet and Income Statements yourself.
Cobra Corporation .
Statement of Cash Flows ($ millions) Take this one section, one step at a time:
For Year Ended December 31st, 2019 Operating: (1) Start with Net Income, add back Depreciation.
(2) Add impact of changes to Current Assets
Cash Flows from Operating Activities (3) Add impact of changes to Liabilities
Net Income $ 78,600 Be very careful of direction! Sources of cash are positive, uses are negative!
Add Back Depreciation 98,700 Investing: (4) Add impact of any changes to long-term assets, including tangible and intangible
(Increase) Decrease in Accounts Receivable (41,300) Financing: (5) Add impact of any changes to long-term debt
(Increase) Decrease in Inventories (28,900) (6) Add impact of any changes to equity, such as if new equity (stock) has been issued.
Increase (Decrease) in Accounts Payable 12,800 (7) Subtract dividends paid.
Increase (Decrease) in Wages Payable 700 Check: (8) Check your answer. The change in cash should match what is shown on the Balance Sheet!
Increase (Decrease) in Income Taxes Payable 6,600
Cash Flow from Operations 127,200
Cash Flows from Investing Activities
(Increase) Decrease in Equipment (139,100) Note one important difference in the Balance Sheet above: Accumulated depreciation is shown separately, rather than the assets being listed as "Net".
(Increase) Decrease in Buildings and Land (119,000) This is required in order to complete a Statement of Cash Flows, since depreciation is not a cash flow.
(Increase) Decrease in Intangible Assets 4,000 If we mixed depreciation in with the long-term asset values, we wouldn't be able to tell how much they actually changed.
Cash Flow from Investing (254,100) For instance, we wouldn't be able to tell the difference between the company selling an asset and simply taking depreciation against an asset.
Cash Flows from Financing Activities
Increase (Decrease) in Long-Term Debt 50,000
Increase (Decrease) in Common Stock 50,000 Please note! Retained Earnings does not show up on a Statement of Cash Flows.
Subtract Dividends Paid (24,900) Retained Earnings represents an accumulation of profits the company has reinvested rather than returning to shareholders as dividends.
Cash Flow from Financing 75,100 Dividends is a cash flow (companies literally write a check to shareholders), but retained earnings is not. It has no impact on net cash flow.
Net Increase (Decrease) in Cash (51,800)
Cash at Beginning of Year 128,500
Cash at End of Year 76,700
Net Change in Cash (51,800) Check your answer! The change in cash caculated should match what is shown on the Balance Sheet above.
As we saw with the Statement of Cash Flows, this company is:
(1) Generating good, positive operating cash flows…
(2) but spending heavily on new equipment, buildings, and land….
(3) and is raising money from lenders and stockholders to finance its spending spree!
This is the practice problem file, provided in the assignment instructions October 2019

Example 5

Workshop One Practice Exercises
Example 5: Comprehensive - Building Financial Statements
A table of collected financial data for Falcon Corporation is provided below:
2018 2019
Cost of goods sold $ 301,600 $ 315,800
Cash 62,000 86,700
Depreciation expense 17,600 18,400
Interest expense 8,100 8,400
Management Salaries 54,500 58,000
Accounts payable 16,500 16,800
Fixed assets (without depreciation) 174,000 178,630
Accumulated Depreciation 49,000 67,400
Sales 597,350 624,650
Wages Expense 123,350 128,900
Other non-operating expenses 7,400 7,800
Long-term debt 86,300 74,680
Accrued Wages Payable 12,000 12,400
Inventory 96,300 101,200
New equity issued (Common Stock) - 5,000
Tax rate (average on all Taxable Income) 17%
Dividend Payout Ratio (of Net Income) 70%
(1) Create Income Statements for both 2018 and 2019
(1) Create Balance Sheets for both 2018 and 2019
(3) Create a Statement of Cash Flows for 2019.
Use the space below to create your solution. If you get stuck, or when you are ready to check your answer, go to the next worksheet tab for the solution.
This is the practice problem file, provided in the assignment instructions October 2019

Ex # 5 Solution

Workshop One Practice Exercises
Example 5: Comprehensive - Building Financial Statements
A table of collected financial data for Falcon Corporation is provided below:
2018 2019
Cost of goods sold $ 301,600 $ 315,800
Cash 62,000 86,700
Depreciation expense 17,600 18,400
Interest expense 8,100 8,400
Management Salaries 54,500 58,000
Accounts payable 16,500 16,800
Fixed assets (without depreciation) 174,000 178,630
Accumulated Depreciation 49,000 67,400
Sales 597,350 624,650
Wages Expense 123,350 128,900
Other non-operating expenses 7,400 7,800
Long-term debt 86,300 74,680
Accrued Wages Payable 12,000 12,400
Inventory 96,300 101,200
New equity issued (Common Stock) - 5,000
Tax rate (average on all Taxable Income) 17%
Dividend Payout Ratio (of Net Income) 70%
(1) Create Income Statements for both 2018 and 2019
(1) Create Balance Sheets for both 2018 and 2019
(3) Create a Statement of Cash Flows for 2019.
Check below for a detailed solution to this problem.
Output area: Unlike the previous problems, you are simply given a raw list of financial data.
So the first step will be to identify which pieces of information belong on the Income Statement and the Balance Sheet.
Falcon Corporation You need to prepare the Income Statements and Balance Sheets first, before you can create the Statement of Cash Flows.
Income Statement ($ thousands)
For Year Ended December 31st, 2018 Once you have identified the information that belongs on the Balance Sheet, you can place them in order.
Net Sales $ 597,350 Once you have identified the information that belongs on the Balance Sheet, you can place them in order.
Cost of Goods Sold 301,600
Management Salaries 54,500
Wages Expense 123,350
Depreciation 17,600
EBIT (Operating Income) 100,300
Interest Expense 8,100
Other Non-Operating Expenses 7,400 Not every company has non-operating expenses other than Interest. Often only interest appears here.
EBT (Taxable Income) 84,800 However, if there are expenses not related to operations, they belong on the Income Statement below EBIT and before EBT.
Income Taxes (17%) 14,416 Calculate taxes here as 17% of EBT (Taxable Income)
Net Income 70,384
Dividends Paid (70%) 49,269 The problem statement above says that 70% of Net Income will be distributed as Dividends. We need this figure for later cash flow calculations.
Addition to Retained Earnings 21,115 The remainder of Net Income not distributed as dividends becomes Retained Earnings.
Falcon Corporation
Income Statement ($ thousands)
For Year Ended December 31st, 2019
Net Sales $ 624,650 Note rather than typing in the numbers given here, the spreadsheet simply refers back to the original cell where the information is given.
Cost of Goods Sold 315,800 This is a good spreadsheet technique - It helps avoid typographical errors.
Management Salaries 58,000
Wages Expense 128,900
Depreciation 18,400
EBIT (Operating Income) 103,550
Interest Expense 8,400
Other Non-Operating Expenses 7,800
EBT (Taxable Income) 87,350
Income Taxes (17%) 14,850 Again taxes are 17% of EBT
Net Income 72,501
Dividends Paid (70%) 50,750 Again Dividends are 70% of Net Income
Addition to Retained Earnings 21,750 Retained Earnings is what is left over. We should see this number again on our Balance Sheet!
Falcon Corporation
Balance Sheet ($ thousands)
December 31st
2018 2019 Change
Cash $ 62,000 $ 76,700 $ 86,700 $ 24,700 Similarly, first identify the information that belongs on the Balance Sheet, then place it into appropriate order.
Inventories 96,300 $ 86,900 101,200 4,900
Total Current Assets 158,300 187,900 29,600
Fixed Assets 174,000 256,400 178,630 4,630
Less: Accumulated Depreciation 49,000 67,400 18,400
Total Fixed Assets 125,000 111,230 (13,770)
Total Assets 283,300 299,130 15,830
Accounts Payable $ 16,500 $ 96,300 $ 16,800 $ 300
Wages Payable 12,000 $ 11,900 12,400 400
Total Current Liabilities 28,500 29,200 700
Long Term Debt 86,300 $ 623,000 74,680 (11,620) When we get to Shareholder's Equity, you should realize you have a problem: Shareholder's Equity wasn't given?
However, we can find it, knowing that Assets = Liabilities + Equity. This is the practice problem file, provided in the assignment instructions October 2019
Shareholders’ Equity 168,500 195,250 26,750 <--- Note the formulas to the left. Equity = Assets - Liabilities
We can check our answer here.
Total Liabilities and Equity 283,300 299,130 15,830 The company had $21,750 of Retained Earnings plus $5000 of new Common Stock issued, which equals $26,750.
Check to make sure your Balance Sheet balances!
Falcon Corporation
Statement of Cash Flows ($ millions) Now that you have created the Balance Sheet and Income Statement, you can complete the Cash Flow Statement.
For Year Ended December 31st, 2019
Take this one section, one step at a time:
Cash Flows from Operating Activities Operating: (1) Start with Net Income, add back Depreciation.
Net Income $ 72,501 (2) Add impact of changes to Current Assets
Add Back Depreciation 18,400 (3) Add impact of changes to Liabilities
(Increase) Decrease in Inventories (4,900) Be very careful of direction! Sources of cash are positive, uses are negative!
Increase (Decrease) in Accounts Payable 300 Investing: (4) Add impact of any changes to long-term assets, including tangible and intangible
Increase (Decrease) in Wages Payable 400 Financing: (5) Add impact of any changes to long-term debt
Cash Flow from Operations 86,701 (6) Add impact of any changes to equity, such as if new equity (stock) has been issued.
(7) Subtract dividends paid.
Cash Flows from Investing Activities Check: (8) Check your answer. The change in cash should match what is shown on the Balance Sheet!
(Increase) Decrease in Fixed Assets (4,630)
Cash Flow from Investing (4,630)
Cash Flows from Financing Activities
Increase (Decrease) in Long-Term Debt (11,620)
Increase (Decrease) in Common Stock 5,000 Note only the new Equity (not retained earnings) shows up on the Statement of Cash Flows.
Subtract Dividends Paid (50,750)
Cash Flow from Financing (57,370)
Net Increase (Decrease) in Cash 24,700
Cash at Beginning of Year 62,000
Cash at End of Year 86,700
Net Change in Cash 24,700 Check your answer! The change in cash caculated should match what is shown on the Balance Sheet above.
Once again, this Statement of Cash Flows is revealing. This company is:
(1) Generating good, positive operating cash flows…
(2) but is spending very little on its fixed assets.
(3) Instead it is using the majority of its cash to pay dividends.
Perhaps the company has decided it can't grow any more, so doesn't see the need to retain its earnings to fund future projects?