Prepare a statement of cash flows for Abraham\'s Manufacturing Company for the y
ID: 2776514 • Letter: P
Question
Prepare a statement of cash flows for Abraham's Manufacturing Company for the year ended December 31, 2012. Interpret your results.
2011 Cash $89,000
Accounts Receivable $64,000
Inventory $112,000
Prepaid Expenses $10,000
Total Current Assets $275,000
Gross Plant and Equipment $238,000
Accumulated Depreciation ($40,000)
Total Assets $473,000
Accounts Payable $85,000
Accrued Liabilities $68,000
Total Current Debt $153,000
Mortgage Payable $70,000
Preferred Stock $0
Common Stock $205,000
Retained Earnings $45,000
Total Debt and Equity $473,000
2012
Cash $100,000
Accounts Receivable $70,000
Inventory $100,000
Prepaid Expenses $10,000
Total Current Assets $280,000
Gross Plant and Equipment $311,000
Accumulated Depreciation ($66,000)
Total Assets $525,000
Accounts Payable $90,000
Accrued Liabilities $63,000
Total Current Debt $153,000
Mortgage Payable $0
Preferred Stock $120,000
Common Stock $205,000
Retained Earnings $47,000
Total Debt and Equity $525,000
Abrahams Manufacturing Company Income Statement for the Year Ended 12/31/2012
Sales $184,000
Cost of Goods Sold $60,000
Gross Profit $124,000
Selling, General and Administrative Expenses $44,000
Depreciation Expense $26,000
Operating Income $54,000
Interest Expense $4,000
Earnings Before Taxes $50,000
Taxes $16,000
Preferred Stock Dividends $10,000
Common Stock Dividends $22,000
Earnings Available to Common Shareholders $24,000
2. Using the information found in the financial statements above, compute the free cash flows for Abraham's Manufacturing Company.
3. Using the information found in the financial statements above, compute the financing cash flows for Abraham's Manufacturing Company.
4. Compose a narrative to interpret the results from questions 1 thru 3 above. What do you assume is happening with this business?
Explanation / Answer
2
Calculation of Free cash flows:
Free cash Flows = EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure
Operating Income (EBIT)
$ 54,000.00
Less: Tax = 54000*16000 / 50000
$ (17,280.00)
Add: Depreciation
$ 26,000.00
Less: Increase in current assets (280000 -275000)
$ (5,000.00)
Less: Capital Expenditure (311000-238000)
$ (73,000.00)
Free Cash Flows
$ (15,280.00)
3
Calculation of financing cash flows:
Repayment of Mortgage
$ (70,000.00)
Issue of Preferred Stock
$ 120,000.00
Preferred Stock Dividend
$ (10,000.00)
Common Stock Dividends
$ (22,000.00)
Financing cash flows
$ 18,000.00
4
From the negative free cash flows we can say that business does ot have cash available , and from the positive financing cash flows we can say that business is arranging funds more.
2
Calculation of Free cash flows:
Free cash Flows = EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure
Operating Income (EBIT)
$ 54,000.00
Less: Tax = 54000*16000 / 50000
$ (17,280.00)
Add: Depreciation
$ 26,000.00
Less: Increase in current assets (280000 -275000)
$ (5,000.00)
Less: Capital Expenditure (311000-238000)
$ (73,000.00)
Free Cash Flows
$ (15,280.00)
3
Calculation of financing cash flows:
Repayment of Mortgage
$ (70,000.00)
Issue of Preferred Stock
$ 120,000.00
Preferred Stock Dividend
$ (10,000.00)
Common Stock Dividends
$ (22,000.00)
Financing cash flows
$ 18,000.00
4
From the negative free cash flows we can say that business does ot have cash available , and from the positive financing cash flows we can say that business is arranging funds more.