Use the following information to answer the next 5 questions. Midas Corp. was fo
ID: 2814215 • Letter: U
Question
Use the following information to answer the next 5 questions.
Midas Corp. was founded on 12/1/2017. The initial balance sheet is as follows:
Balance Sheet-12/1/2017
Assets
Liabilities and Owners Equity
Cash 2500
Debt
0
Long Term Assets 1800
Stock
5200
Inventory 900
Total 5200
Total
5200
Suppose that the following transactions occurred between 12/1/2017 and 12/31/2017:
Inventory purchase of $600 (paid in cash)
$1600 worth of credit sales (due on 1/31/2018)
Operating Accruals of $50
Depreciation of $200
Taxes of $100 (paid 12/20/2017)
Ending inventory of $400
1. What is the company’s net income on 12/31/2017?
450
300
250
None of the above
2. Find the amount of cash the company paid to its suppliers from 12/1-12/31.
3.What is the company’s cash flow from operations on 12/31/2017?
-700
-950
4. What is the retained earnings balance on 12/31/2017?
300
350
200
150
5.Find Midas' operating cash margin from 1/1-1/31.
-850
-950
-600
None of the above
Balance Sheet-12/1/2017
Assets
Liabilities and Owners Equity
Cash 2500
Debt
0
Long Term Assets 1800
Stock
5200
Inventory 900
Total 5200
Total
5200
Explanation / Answer
Solution:
(1) Net income = sales - (COGS+ op. exp.+ Depreciation) - tax
= 1,600 - {(900+600-400) +50 +200} - 100
=$150 (None of the above)
(2) cash paid to suppliers from12/1- 12/31 = 0
(3) company's cash flow from op. =$ -700 (i.e. 150+ 200+50+500- 1600)
(4) company's retained earnings = $150 (i.e. Its net income)