Writing Assignment Explaining discrepancies between cash flow and operating income
The following selected information was drawn from the records of Fleming Company:
Assets | 2011 | 2012 |
Accounts receivable | S 400,000 | S 840,200 |
Merchandise inventory | 720,000 | 1,480,000 |
Equipment | 1,484,000 | 1,861,200 |
Accumulated depreciation | (312,000) | (402,400) |
Fleming is experiencing cash flow problems. Despite the fact that it reported significant increases in operating income, operating activities produced a net cash outflow. Recent financial forecasts predict that Fleming will have insufficient cash to pay its current liabilities within three months.
Required
Write an explanation of Fleming’s cash shortage. Include a recommendation to remedy the problem.
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