The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2020. Because he must leave on an emergency, he asks you to finish the letter by explaining: (1) the disparity between net income and cash flow, (2) the importance of operating cash flow, (3) the renewable source(s) of cash flow, and (4) possible suggestions to improve the cash position. Kappeler CorporationStatement of Cash FlowsFor the Year Ended December 31, 2020 Cash flows from operating activities Net income $ 100,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense $ 10,000 Amortization expense 1,000 Loss on sale of fixed assets 5,000 Increase in accounts receivable (net) (40,000) Increase in inventory (35,000) Decrease in accounts payable (41,000) (100,000) Net cash provided by operating activities –0– Cash flows from investing activities Sale of plant assets 25,000 Purchase of equipment (100,000) Purchase of land (200,000) Net cash used by investing activities (275,000) Cash flows from financing activities Payment of dividends (10,000) Redemption of bonds (100,000) Net cash used by financing activities (110,000) Net decrease in cash (385,000) Cash balance, January 1, 2020 400,000 Cash balance, December 31, 2020 $ 15,000 Date President Kappeler, CEO Kappeler Corporation 125 Wall Street Middleton, Kansas 67458 Dear Mr. Kappeler: I have good news and bad news about the financial statements for the year ended December 31, 2020. The good news is that net income of $100,000 is close to what we predicted in the strategic plan last year, indicating strong performance this year. The bad news is that the cash balance is seriously low. Enclosed is the Statement of Cash Flows, which best illustrates how both of these situations occurred simultaneously . . . Instructions Complete the letter to the CEO, including the four components requested by your boss.

The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2020. Because he must leave on an emergency, he asks you to finish the letter by explaining: (1) the disparity between net income and cash flow, (2) the importance of operating cash flow, (3) the renewable source(s) of cash flow, and (4) possible suggestions to improve the cash position. Kappeler CorporationStatement of Cash FlowsFor the Year Ended December 31, 2020 Cash flows from operating activities Net income $ 100,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense $ 10,000 Amortization expense 1,000 Loss on sale of fixed assets 5,000 Increase in accounts receivable (net) (40,000) Increase in inventory (35,000) Decrease in accounts payable (41,000) (100,000) Net cash provided by operating activities –0– Cash flows from investing activities Sale of plant assets 25,000 Purchase of equipment (100,000) Purchase of land (200,000) Net cash used by investing activities (275,000) Cash flows from financing activities Payment of dividends (10,000) Redemption of bonds (100,000) Net cash used by financing activities (110,000) Net decrease in cash (385,000) Cash balance, January 1, 2020 400,000 Cash balance, December 31, 2020 $ 15,000 Date President Kappeler, CEO Kappeler Corporation 125 Wall Street Middleton, Kansas 67458 Dear Mr. Kappeler: I have good news and bad news about the financial statements for the year ended December 31, 2020. The good news is that net income of $100,000 is close to what we predicted in the strategic plan last year, indicating strong performance this year. The bad news is that the cash balance is seriously low. Enclosed is the Statement of Cash Flows, which best illustrates how both of these situations occurred simultaneously . . . Instructions Complete the letter to the CEO, including the four components requested by your boss.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle.

Section: Chapter Questions

Problem 40RQSC: Read the following scenario about Strang Corporation and identify the substantive procedures that...

See similar textbooks

Kappeler Corporation Statement of Cash Flows For the Year Ended December 31, 2020
Cash flows from operating activities
Net income		$ 100,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	$ 10,000
Amortization expense	1,000
Loss on sale of fixed assets	5,000
Increase in accounts receivable (net)	(40,000)
Increase in inventory	(35,000)
Decrease in accounts payable	(41,000)	(100,000)
Net cash provided by operating activities		–0–
Cash flows from investing activities
Sale of plant assets	25,000
Purchase of equipment	(100,000)
Purchase of land	(200,000)
Net cash used by investing activities		(275,000)
Cash flows from financing activities
Payment of dividends	(10,000)
Redemption of bonds	(100,000)
Net cash used by financing activities		(110,000)
Net decrease in cash		(385,000)
Cash balance, January 1, 2020		400,000
Cash balance, December 31, 2020			$ 15,000

Instructions

Complete the letter to the CEO, including the four components requested by your boss.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Earnings Quality, Measurement and Management

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.