- Salza Technology Corporation increased its sales from $375,000 in 2018 to $450,000 in 2019 as shown in the firm’s income statements presented below. LeAnn Sands, chief executive officer and founder of the firm, expressed concern that the cash account and the firm’s marketable securities declined substantially between 2018 and 2019. Salza’s complete balance sheets are also shown. Ms. Sands is seeking your assistance in the preparation of a statement of cash flows for Salza Technology.
-
- Use your calculations from Part A for cash flows from operating and investing activities to indicate the extent to which Salza was building or burning cash in 2019.
- Convert the 2019 annual cash build or cash burn to a monthly rate. If cash flow activities relating to operations and investing for 2019 continue into 2020, indicate (1) how long it will be before Salza runs out of cash (if Salsa is burning cash) or (2) the expected 2020 year-end cash account balance if Salza is building cash. Assume no changes in cash flows from financing activities in 2020 for calculation purposes.
Homework Answers
| CASH FLOW STATEMENT -YEAR2020 | ||||||
| CASH FLOW FROM OPERATING ACTIVITIES | ||||||
| a | Net Income | $70 | ||||
| Adjustment to reconcile net income | ||||||
| to net cash provided by operating activities | ||||||
| b | Depreciation expense | $30 | ||||
| (Increase)/Decrease in current assets | ||||||
| c | Increase in Accounts Receivable | -$30 | (80-50) | |||
| d | Increase in Inventory | -$53 | (204-151) | |||
| Increase/(Decrease) in current liabilities | ||||||
| e | Increase in Accounts Payable | $15 | (45-30) | |||
| f | Increase in accrued liabilities | $13 | (23-10) | |||
| A=a+b+c+d+e+f | NET CASH PROVIDED BY OPERATING ACTIVITIES | $45 | ||||
| CASH FLOW FROM INVESTING ACTIVITIES | ||||||
| Fixed asset in the beginning of the year | $105 | |||||
| Less:Depreciation expense | $30 | |||||
| Add: Investment in Fixed Assets | $90 | |||||
| Fixed asset in the End of the year | $165 | |||||
| Investment in Fixed asset | -$90 | |||||
| NET CASH FLOW USED FOR INVESTING ACTIVITIES | -$90 | |||||
| A | Amount of Cash burning =45-90 | -$45.00 | ||||
| B | Cash Burining rate per month=45/12= | -$3.75 | ||||
| Cash Balance in the beginning of year 2020 | $16.00 | |||||
| Number of months to run out of cash=16/3.75 | 4.27 | |||||
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