Decision_Making

Statement of Cash Flows Problem Christian M. Gonzalez University of Phoenix ACC539: Accounting for Managerial Decision Making Group# GA04MBA07 Chee-Sum Tan, CPA, CFA, FCCA, MBA March 10, 2005 P9.28. The strategy is to enter the amount of the change for each asset, liability and owners' equity item between the two dates. Each of these changes will be used in the Statement of Cash Flows. (Note: Because the retained earnings section of the balance sheet is, in and of itself, an analysis of the change in the retained earnings account for the month, total net income and total dividends for the month of February are shown as changes). MILLCO, INC. Balance Sheets January 31 and February 28, 2004 Assets: Feb. 28 Jan. 31 Change Cash $ 42,000 $ 37,000 +5,000 Accounts receivable 64,000 53,000 +11,000 Merchandise inventory 81,000 94,000 -13,000 Total current assets $187,000 $184,000 Plant and Equipment: Production equipment $166,000 $152,000 +14,000 Less: Accumulated depreciation (24,000) (21,000) +(3,000) Total assets $329,000 $315,000 Liabilities: Short-term debt $ 44,000 $ 44,000 0 Accounts payable 37,000 41,000 - 4,000 Other accrued liabilities 21,000 24,000 - 3,000 Total current liabilities $102,000 $109,000 Long-term debt 33,000 46,000 -13,000 Total liabilities $135,000 $155,000 Owners’ Equity: Common stock, no par value, 40,000 shares authorized, 30,000 and 20,000 shares issued, respectively $104,000 $ 96,000 +8,000 Retained earnings: Beginning balance $ 64,000 $ 43,000 Net income for the month 36,000 29,000 +36,000 Dividends (10,000) (8,000) -10,000 Ending balance $ 90,000 $ 64,000 Total owners' equity $ 194,000 $160,000 Total liabilities and owners' equity $ 329,000 $315,000 P9.28. (continued) The statement of cash flows uses the changes between the two month-end balance sheets, as illustrated below: MILLCO, INC. Statement of Cash Flows For the Month Ended February 28, 2004 Cash flows from operating activities: Net income $ 36,000 Add (deduct) items not affecting cash: Depreciation expense 3,000 Increase in accounts receivable (11,000) Decrease in merchandise inventory 13,000 Decrease in accounts payable (4,000) Decrease in other accrued liabilities (3,000) Net cash provided by operating activities $ 34,000 Cash flows from investing activities: Purchases of production equipment (14,000) Cash flows from financing activities: Payment of long-term debt $(13,000) Sale of common stock 8,000 Payment of dividends (10,000) Net cash flows used by financing activities (15,000) Net increase in cash for the year $ 5,000 Notice that the statement of cash flows has explained the +$5,000 change in cash during the year by using the change in every other balance sheet item.