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A cash flow statement is critical because it helps managementanalyze the organization's finances. It helps determine whetherthere is enough cash flow to cover expenses such as payroll. It isalso beneficial to compare the operating activities expenses to thenet income. If the cash reported is higher than the net income,that is a good sign for the company. Non-cash items are added backto the profit in order to have a near actual expenses incurred. Wealso need to adjust the net income figure so it is not reduced bythe depreciation expense. This is why we add non-cash items back.The profit then ends up showing a smaller number. A company canhave a positive net income but a negative cash flow from operatingactivities because net income can be increased by non- cash itemsthat don't affect cash flow. Cash flow can be decreased by actualcash payouts that might not be considered an expense deduction fornet income. Some non-cash activities are mentioned in the statementof cash flow because they may have a significant impact on thecurrent and future performance in terms of revenue, profits, andthe ability of the organization to produce positive cash flows. Oneexample may be issuance of stock to retire a debt.
Can you help me respond to this post
A cash flow statement is critical because it helps managementanalyze the organization's finances. It helps determine whetherthere is enough cash flow to cover expenses such as payroll. It isalso beneficial to compare the operating activities expenses to thenet income. If the cash reported is higher than the net income,that is a good sign for the company. Non-cash items are added backto the profit in order to have a near actual expenses incurred. Wealso need to adjust the net income figure so it is not reduced bythe depreciation expense. This is why we add non-cash items back.The profit then ends up showing a smaller number. A company canhave a positive net income but a negative cash flow from operatingactivities because net income can be increased by non- cash itemsthat don't affect cash flow. Cash flow can be decreased by actualcash payouts that might not be considered an expense deduction fornet income. Some non-cash activities are mentioned in the statementof cash flow because they may have a significant impact on thecurrent and future performance in terms of revenue, profits, andthe ability of the organization to produce positive cash flows. Oneexample may be issuance of stock to retire a debt.
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The followingfinancial statements and additional information are reported. |
IKIBAN INC. Comparative Balance Sheets June 30, 2015 and 2014 | ||||||||
2015 | 2014 | |||||||
Assets | ||||||||
Cash | $ | 111,800 | $ | 69,700 | ||||
Accounts receivable, net | 69,100 | 51,200 | ||||||
Inventory | 65,900 | 96,200 | ||||||
Prepaid expenses | 5,000 | 5,600 | ||||||
Total current assets | 251,800 | 222,700 | ||||||
Equipment | 125,800 | 115,000 | ||||||
Accum. depreciationâEquipment | (28,700 | ) | (10,700 | ) | ||||
Total assets | $ | 348,900 | $ | 327,000 | ||||
Liabilities and Equity | ||||||||
Accounts payable | $ | 26,500 | $ | 32,200 | ||||
Wages payable | 7,900 | 16,900 | ||||||
Income taxes payable | 2,800 | 3,600 | ||||||
Total current liabilities | 37,200 | 52,700 | ||||||
Notes payable (long term) | 50,000 | 77,000 | ||||||
Total liabilities | 87,200 | 129,700 | ||||||
Equity | ||||||||
Common stock, $5 par value | 237,000 | 189,000 | ||||||
Retained earnings | 24,700 | 8,300 | ||||||
Total liabilities and equity | $ | 348,900 | $ | 327,000 | ||||
IKIBAN INC. Income Statement For Year Ended June 30, 2015 | ||||||
Sales | $ | 677,000 | ||||
Costof goods sold | 411,000 | |||||
Gross profit | 266,000 | |||||
Operating expenses | ||||||
Depreciation expense | $ | 58,600 | ||||
Other expenses | 66,900 | |||||
Total operating expenses | 125,500 | |||||
140,500 | ||||||
Other gains (losses) | ||||||
Gain on sale ofequipment | 2,700 | |||||
Income before taxes | 143,200 | |||||
Income taxes expense | 57,280 | |||||
Netincome | $ | 85,920 | ||||
Additional Information |
a. | A $27,000 notepayable is retired at its $27,000 carrying (book) value in exchangefor cash. |
b. | The only changesaffecting retained earnings are net income and cash dividendspaid. |
c. | New equipment isacquired for $59,500 cash. |
d. | Received cashfor the sale of equipment that had cost $48,700, yielding a $2,700gain. |
e. | Prepaid Expensesand Wages Payable relate to Other Expenses on the incomestatement. |
f. | All purchasesand sales of inventory are on credit. |
(1) Prepare a statement of cash flows for the year ended June30, 2015, using the indirect method. (Amounts to bededucted should be indicated with a minus sign.)
(2) Compute the company's cash flow on total assets ratio forits fiscal year 2015.
|
The comparative balance sheet of Canace Products Inc. forDecember 31, 2016 and 2015, is shown as follows:
1 | Dec. 31, 2016 | Dec. 31, 2015 | |
2 | Assets | ||
3 | Cash | $643,320.00 | $679,710.00 |
4 | Accounts receivable (net) | 567,060.00 | 547,290.00 |
5 | Inventories | 1,010,150.00 | 983,330.00 |
6 | Investments | 0.00 | 240,620.00 |
7 | Land | 520,090.00 | 0.00 |
8 | Equipment | 879,420.00 | 680,200.00 |
9 | Accumulated depreciation-equipment | (244,310.00) | (200,240.00) |
10 | Total assets | $3,375,730.00 | $2,930,910.00 |
11 | Liabilities and Stockholdersâ Equity | ||
12 | Accounts payable (merchandise creditors) | $772,600.00 | $747,990.00 |
13 | Accrued expenses payable (operating expenses) | 63,150.00 | 70,180.00 |
14 | Dividends payable | 8,990.00 | 7,370.00 |
15 | Common stock, $2 par | 56,000.00 | 32,000.00 |
16 | Paid-in capital: Excess of issue price over parâcommon stock | 408,000.00 | 192,000.00 |
17 | Retained earnings | 2,066,990.00 | 1,881,370.00 |
18 | Total liabilities and stockholdersâ equity | $3,375,730.00 | $2,930,910.00 |
The income statement for the year ended December 31, 2016, is asfollows:
1 | Sales | $5,978,640.00 | |
2 | Cost of merchandise sold | 2,452,460.00 | |
3 | Gross profit | $3,526,180.00 | |
4 | Operating expenses: | ||
5 | Depreciation expense | $44,070.00 | |
6 | Other operating expenses | 3,099,060.00 | |
7 | Total operating expenses | 3,143,130.00 | |
8 | Operating income | $383,050.00 | |
9 | Other expense: | ||
10 | Loss on sale of investments | (65,430.00) | |
11 | Income before income tax | $317,620.00 | |
12 | Income tax expense | 103,420.00 | |
13 | Net income | $214,200.00 |
Additional data obtained from an examination of the accounts inthe ledger for 2016 are as follows:
A. | Equipment and land were acquiredfor cash. |
B. | There were no disposals ofequipment during the year. |
C. | The investments were sold for$175,190 cash |
D. | The common stock was issued forcash. |
E. | There was a $28,580 debit toRetained Earnings for cash dividends declared. |
Prepare a statement of cash flows, using the direct method ofpresenting cash flows from operating activities. Be sure tocomplete the heading of the statement. Refer to the Labels andAmount Descriptions list provided for the exact wording of theanswer choices for text entries. Use the minus sign only toindicate the net cash outflows for each section. âDeductâ, âLessâor colons (:) will automatically appear if required.
Labels and Amount Descriptions
Labels andAmount Descriptions | |
---|---|
Cash paid for dividends | |
Cash paid for purchase ofequipment | |
Cash paid for purchase of land | |
Cash paid for purchase of treasurystock | |
Cash payments for income taxes | |
Cash payments for merchandise | |
Cash payments for operatingexpenses | |
Cash received from customers | |
Cash received from sale of commonstock | |
Cash received from sale ofinvestments | |
December 31, 2016 | |
Decrease in cash | |
Depreciation | |
For the Year Ended December 31,2016 | |
Gain on sale of investments | |
Increase in cash | |
Issuance of common stock foracquisition of land | |
Issuance of common stock forpurchase of equipment | |
Loss on sale of investments | |
Net cash flow from financingactivities | |
Net cash flow from investingactivities | |
Net cash flow from operatingactivities | |
Net cash flow used for financingactivities | |
Net cash flow used for investingactivities | |
Net cash flow used for operatingactivities |
Statement of Cash Flows
Prepare a statement of cash flows, using the direct method ofpresenting cash flows from operating activities. Be sure tocomplete the heading of the statement. Refer to the Labels andAmount Descriptions list provided for the exact wording of theanswer choices for text entries. Use the minus sign only toindicate the net cash outflows for each section. âDeductâ, âLessâor colons (:) will automatically appear if required.
Canace Products Inc. |
Statement of Cash Flows |
1 | Cash flows from operating activities: | |||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
7 | ||||
8 | Cash flows from investing activities: | |||
9 | ||||
10 | ||||
11 | ||||
12 | ||||
13 | ||||
14 | Cash flows from financing activities: | |||
15 | ||||
16 | ||||
17 | ||||
18 | ||||
19 | Cash at the beginning of the year | |||
20 | Cash at the end of the year |