Question

Use the information below to prepare a statement of cash flows for Windswept Woodworks, Inc. for year 2. Net income is given. (Use a minus sign to indicate negative values. Round each entry to 2 decimal places.) Windswept Woodworks, Inc. Input Data (millions of dollars) Year 2 Accounts payable 436 Accounts receivable 1,280 Accumulated depreciation 6,746 Cash & equivalents 224 Common stock 1,184 Cost of goods sold 1,500 Depreciation expense 7 Common stock dividends paid 7 Interest expense 140 Inventory 1,014 Addition to retained earnings 602 Long-term debt 812 Notes payable 230 Gross plant & equipment 10,260 Retained earnings 3,062 Sales 3,018 Other current liabilities 116 Tax rate 340 Market price per share - year end $ 19.80 Number of shares outstanding 500.00 million Year 1 384 830 6,632 128 1, 120 .a. n. n.. n.. 1,026 n.. 736 380 10,000 2,476 n.a. 96 n.a. 17.50 500.00 million $

Answer 1

In the given question , a cash flow statement has to be prepared . Indirect method of preparing cash flow statements will be used , as the balances as at the start and end of the financial period are given .

Windswept Woodworks INC
Cash flow statement for the year ended December 31
Cash balance as on December, 31 , Year 1	$       128.00
Cash flow from operations
Net Income	$       834.24
Add: Depreciation expense	$       114.00
Add: Interest paid	$       140.00
Increase in Accounts receivable	$     (450.00)
Decrease in Inventories	$         12.00
Increase in Accounts payable	$         52.00
Decrease in notes payable	$     (150.00)
Increase in other current liabilities	$         20.00
Total Cash flow from operations	$       572.24
Cash flow from Investing Activities
Increase in gross plant and equipment	$     (260.00)
Total cash flow from Investments	$     (260.00)
Cash flow from financing activities
Increase in long term debt	$         76.00
Increase in common stock	$         64.00
Cash dividends paid to common stock holders ( Refer WN )	$     (216.24)
Interest paid	$     (140.00)
Total cash flow from Financing	$     (216.24)
Net Change in Cash balance	$         96.00
Cash balance as on December 31, Year 2	$       224.00

Working Notes
Schedule of changes in Assets and Liabilities
	Year 2	Year 1	Change
Increase in Accounts receivable	$                1,280	$              830	$         450
Decrease in Inventories	$                1,014	$          1,026	$         (12)
Increase in Accounts payable	$                    436	$              384	$            52
Decrease in notes payable	$                    230	$              380	$       (150)
Increase in other current liabilities	$                    116	$                96	$            20
Accumulated Depreciation	$                6,746	$          6,632	$         114
Increase in Plant & Equipment	$              10,260	$        10,000	$         260	Depreciation for the year
Long Term Debt	$                    812	$              736	$            76
Common Stock	$                1,184	$          1,120	$            64
Cash dividends
Change in Retained earnings
Closing as at the end of Year 2	$          3,062.00
Closing as at the end of Year 1	$          2,476.00
Increase in RE	$              586.00
Increase in Current assets reduces the cash flows and hence treated as outflow.
Decrease in Current assets increases the cash flows and hence treated as inflow.
Incease in Current Liabilities , increases cash flows
Decrease in Current liabilities , reduces cash flows
Statement of Income for the year 2 , ended December 31
Sales	$          3,018.00
Less: COGS	$          1,500.00
Gross Margin	$          1,518.00
Less: Expenses
Depreciation	$              114.00
Interest	$              140.00
Net Margin before taxes	$          1,264.00
Less: Taxes @ 34/100	$              429.76
Net Income	$              834.24
Less: Trf to Retained earnings	$              602.00
Cash Dividends paid for the year	$              232.24	From Current year   profits
Account for Retained earnings
Opening balance of RE	$                2,476
Add: Transfer from Current year profits	$                    602
Less: Balance at the close of the year	$                3,062
Dividends paid from Prrevious year's profits	$                      16	( Balancing Figure)
Total Dividends paid from cash = Dividends paid - Dividends paid from RE
232.24-16= 216.24