Question

The Castillo Company reported operating profits of $60,000, Depreciation expenses of $40,000, Interest expense of $10,000 and paid $10,000 in taxes in 2017. Following are the Company’s balance sheets for 2016 and 2017.

C&B CASTILLO COMPANY

                                                            2016                    2017

Cash                                                    $50,000              $5,000

Accounts Receivables                         200,000           300,000   

Inventories                                          400,000           480,000

Total Current Assets                         650,000           785,000

Gross Fixed Assets                             450,000           570,000

Accumulated Depreciation                -100,000           -140,000

Net Fixed Assets                                 350,000             430,000

Total Assets                               $1,000,000        $1,215,000

Accounts Payable                             $130,000          $170,000    

Accruals                                                50,000              40,000

Bank Loan                                            90,000           110,000

Total Current Liabilities                   270,000           320,000

Long-Term Debt                                 300,000           425,000

Common Stock                                   150,000           150,000

Paid-in-Capital                                   200,000           200,000

Retained Earnings                                 80,000           120,000

Total Liabilities & Equity           $1,000,000       $1,215,000

1. Calculate Castillo’s cash flow from operating activities for 2017.

2. Calculate Castillo’s cash flow from investing activities for 2017.

3. Calculate Castillo’s cash flow from financing activities for 2017.

4. Prepare a formal statement of cash flows for 2017.

Answer 1

Req a.
Cash flows from Operating activities
Net Income for the year			60,000
Adjustment required for reconciliation
Depreciation				40,000
Increase in Accounts receivable			-1,00,000
Incease in Inventories			-80,000
Increase in Accounts payable			40,000
Decrease in Accruals				-10,000
Net cash used in Operating activities			-50,000
Req b.
Cash flows from Investing activities
Purchase of Fixed Assets			-1,20,000
Net cash used in Investing activities			-1,20,000
Req c
Cash Flows from Financing activities
Borrowing from Bank Loan-Current		20,000
Issuance of Long term debt			1,25,000
Dividend paid (80,000 +60,000-120,000)		-20,000
Net cash provided from Financing activities			1,25,000
Req d.
CASH FLOW STATEMENT
Cash flows from Operating activities
Net Income for the year			60,000
Adjustment required for reconciliation
Depreciation				40,000
Increase in Accounts receivable			-1,00,000
Incease in Inventories			-80,000
Increase in Accounts payable			40,000
Decrease in Accruals				-10,000
Net cash used in Operating activities			-50,000
Cash flows from Investing activities
Purchase of Fixed Assets			-1,20,000
Net cash used in Investing activities			-1,20,000
Cash Flows from Financing activities
Borrowing from Bank Loan-Current		20,000
Issuance of Long term debt			1,25,000
Dividend paid (80,000 +60,000-120,000)		-20,000
Net cash provided from Financing activities			1,25,000
Net decrease in cash					-45,000
Beginning balance of cash				50,000
Ending balance of cash				5,000