I need help with setting up and answering questions 1-5 125%v iewZoom Insert Tab

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I need help with setting up and answering questions 1-5

125%v iewZoom Insert Table Chart Text Shape Media Comment 122PGT The following transactions occurred during 2017 to assist you in preparing the Statement of Cash Flows for 2017 A. Dividends were declared in 2016 and paid 2017 B. Purchased Treasury Stock for $10,000 on 1/1/2017 C. Sold Treasury Stock receiving cash D. Sold Plant Assets, receiving cash. The net book value of the plant asset was $20,000. E. Paid off a portion of theage note. F. Retired bonds at their maturity value G. Amortized the Discount on Bonds Payable. H. Issued common stock, receiving cash Require 1. Prepare the Statement of Cash Flows for the year ended December 31, 2017 (Show all required computations) Assume that your manager, who has a marketing background ask you the following questions 2-5, after reviewing the Statement of Cash Flows for 2017 and 2016. As you can see from the premise of the questions, that your manager does not have a basic understanding of the statement of cash flows. Take that into consideration when answering questions 2-5. 2. "How can Depreciation be a cash flow"? 3. "How can a gain on the sale of non-current assets be a deduction from Net Income in determining the Cash Flow from Operating Acti 4. "How can a Loss on the Sale of non current assets be be addition to Net Income in determining Cash Flow from Operating Activities? 5. "Why does the bank need a Statement of Cash Flows anyway? They can compute the increase or decrease in cash flow from the Balance Sheet for the last two years"? 6. Prepare the following financial statement analysis for the 2017 and 2016 Define each measure and whether the Summer Company did better or worse and why? A. Current ratio. B. Quick ratio C. Rate of Return on Total Assets esc F2 F6 2 4 6

Explanation / Answer

1.

2.As depreciation expense is a non cash item , this needs to be added to get the actual cash received from the operations.

3 and 4. Gain or los o sale of an asset is the difference betwen the book value and the cash received on the sale.

To get at the actual cash flow, this amount has to be adjusted to the net incomeas the activity discussed relates to the investments made by the company. The actual cash realised on the sale has to be shown as a cash flow from investing activity.

4.

The Summer Company Statement of cash flow for the year ended December31, 2017 Cash flow from operations:     Net income 27100    Adjustments for non-cash items in incoe statement      Depreciation 20000      Amortization of bond discount 1000      Gain on sale of equipment -10000 11000    Adjustment for changes in non-cash curent accounts:     Accounts receivable -207000     Merchandise Inventory -20000     Prepaid Expenses 1000     Accounts Payable 25000     Accrued liabilities -7000     Dividends Payable -10000 -218000      Cash flow from operations -179900 Cash flow from investments:     Sale of plant Assets 30000 Cash flow from financing activities    Retirement of bonds payable -100000    Retirement of mortgage payable -20000    Issue of common stock 190000    Purchase of treasury stock -10000    Sale of treasury stock 13000 Cash flow from financing activities 73000 Net Cash flow -76900 Beginning cash balance 253100 Ending cash balance 176200 Change in cash balance -76900 Sale of plant assets: Book value of the plant assets 20000 Gain on sale of plant assets 10000 Cash from sale of plant assets 30000

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