Using a Statement of Cash Flows
Auto Supply Company’s 2015 statement of cash flows appears in Exhibit 13–8 . Study the statement and respond to the following questions:
a. What was the company’s free cash flow in 2015?
b. What were the major sources and uses of cash from financing activities during 2015? Did the net effect of financing activities result in an increase or a decrease in cash during the year?
c. What happened to the total amount of cash and cash equivalents during the year? Assuming 2015 was a typical year, is the firm in a position to continue its dividend payments in the future? Explain.
d. Look at the reconciliation of net income to net cash provided by operating activities, and explain the following:
1. Net loss (gain) from the sale of marketable securities.
2. Increase in accounts receivable.
EXHIBIT 13–8
Auto Supply Co. Statement of Cash Flows
AUTO SUPPLY CO. | ||
STATEMENT OF CASH FLOWS | ||
FOR THE YEAR ENDED DECEMBER 31, 2015 | ||
Cash flows from operating activities: | ||
Net income |
| $ 250,000 |
Add: Depreciation expense |
| 60,000 |
Decrease in inventory |
| 5,000 |
Increase in accounts payable |
| 10,000 |
Subtotal |
| $ 325,000 |
Less: Increase in accounts receivable | $ 10,000 |
|
Decrease in accrued expenses payable | 15,000 |
|
Gain on sales of marketable securities | 20,000 | 45,000 |
Net cash provided by operating activities |
| $ 280,000 |
Cash flows from investing activities: | ||
Proceeds from sales of marketable securities | $ 35,000 |
|
Cash paid to acquire plant assets (see supplementary schedule below) | (30,000) |
|
Net cash provided by investing activities |
| 5,000 |
Cash flows from financing activities: | ||
Dividends paid | $ (140,000) |
|
Payments to retire bonds payable | (150,000) |
|
Net cash used for financing activities |
| (290,000) |
Net decrease in cash |
| $ (5,000) |
Cash and cash equivalents, Jan. 1, 2015 |
| 50,000 |
Cash and cash equivalents, Dec. 31, 2015 |
| $ 45,000 |
Supplementary Schedule: Noncash Investing and Financing Activities | ||
Purchases of plant assets |
| $ 100,000 |
Less: Portion financed through issuance of long-term debt |
| 70,000 |
Cash paid to acquire plant assets |
| $ 30,000 |
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