Question

You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year, and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $700,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.5 million of property, plant, and equipment — the majority having a useful life of more than 20 years and falling under the alternative depreciation system. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $440,000. The purchase price for the represents additions property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 6% interest rate. What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary.

Answer 1

Statement of Cash flow of Barington Industries ( in Dollars )
Cash flow from Operating activities	5000000
Add : Depreciation	440000
Cash flow from Operating activities		5440000
Cash flow from Investing Activities
Purchase of Property , Plant and Equipment	5500000
Dividend	700000
Cash flow from Investing Activities		-6200000
Cash flow from Financing activities
Long term debt	1000000
Cash flow from Financing activities		1000000
Net Increase in cash and cash equivalents during the year		240000
Add :Opening Cash at bank		100000
Cash and Cash equivalents at the end of the year		340000
We assume that Depreciation $ 4400000 , was charged to Income , while arriving at net income 5 million for the year

Working notes : Depreciation shall not be part of the Cash flow statement.