Problem

Using a Statement of Cash FlowsAuto Supply Company’s 2015 statement of cash flows appears...

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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