Chapter 12 Problem Set a
Module 3 – Chapter 12
Problem 12-1A
Part 1
KAZAAM COMPANY
Statement of Cash Flows
For Year Ended December 31, 2011
Cash flows from operating activities Net income $73,750 Adjustments to reconcile net income to net cash provided by operating activities Increase in accounts receivable ($49,625 - $65,000) (15,375) Increase in inventory ($252,500 - $273,750) (21,250) Decrease in prepaid expenses ($6,250 - $5,375) 875 Decrease in accounts payable ($116,625- $88,125) (28,500) Depreciation expense 18,750 Loss on disposal of equipment 5,125 Net cash provided by operating activities $33,375 Cash flows from investing activities Cash received from sale of equipment 13,625 Cash paid for equipment (25,000) Net cash used in investing activities (11,375) Cash flows from financing activities Cash borrowed on short-term note 3,750 Cash paid on long-term note (31,375) Cash received from issuing stock (2,500 x $18) 45,000 Cash paid for dividends (62,125) Net cash used in financing activities (44,720)
Net decrease in cash ($ 22,750)
Cash balance at beginning of year 2011 76,625
Cash balance at end of year 2011 $53,875
Noncash investing and financing activities
Purchased equipment for $96,375 by signing a $71,375 long-term note payable and paying $25,000 in cash.
Part 2
Kazaam Company dividend payments of $62,125 represent 84% of the $73,750 net income for the year, which is in the normal range for most companies. However, operating activities provide a net cash inflow of $33,375 which is low for that amount of a dividend payout.
Further analysis reveals that investing activities used a modest $11,375 and, excluding the dividends, financing activities used only $3,750. This resulted in a $22,750 decrease in the company's cash balance for the year, a 30% decrease.
Problem 12-1A
Part 1
KAZAAM COMPANY
Statement of Cash Flows
For Year Ended December 31, 2011
Cash flows from operating activities Net income $73,750 Adjustments to reconcile net income to net cash provided by operating activities Increase in accounts receivable ($49,625 - $65,000) (15,375) Increase in inventory ($252,500 - $273,750) (21,250) Decrease in prepaid expenses ($6,250 - $5,375) 875 Decrease in accounts payable ($116,625- $88,125) (28,500) Depreciation expense 18,750 Loss on disposal of equipment 5,125 Net cash provided by operating activities $33,375 Cash flows from investing activities Cash received from sale of equipment 13,625 Cash paid for equipment (25,000) Net cash used in investing activities (11,375) Cash flows from financing activities Cash borrowed on short-term note 3,750 Cash paid on long-term note (31,375) Cash received from issuing stock (2,500 x $18) 45,000 Cash paid for dividends (62,125) Net cash used in financing activities (44,720)
Net decrease in cash ($ 22,750)
Cash balance at beginning of year 2011 76,625
Cash balance at end of year 2011 $53,875
Noncash investing and financing activities
Purchased equipment for $96,375 by signing a $71,375 long-term note payable and paying $25,000 in cash.
Part 2
Kazaam Company dividend payments of $62,125 represent 84% of the $73,750 net income for the year, which is in the normal range for most companies. However, operating activities provide a net cash inflow of $33,375 which is low for that amount of a dividend payout.
Further analysis reveals that investing activities used a modest $11,375 and, excluding the dividends, financing activities used only $3,750. This resulted in a $22,750 decrease in the company's cash balance for the year, a 30% decrease.