FINANCIAL ACCOUNTING>IC<
15th Edition
ISBN: 9781119344988
Author: Kimmel
Publisher: WILEY C
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 1, Problem 1.4EYCT
INTERPRETING FINANCIAL STATEMENTS
Xerox was not having a particularly pleasant year. The company’s stock price had already fallen in the previous year from $60 per share to $30. Just when it seemed things couldn't get worse, Xerox's stock fell to $4 per share. The data below were taken from the statement of cash flows of Xerox. (All dollars are in millions.)
instructions
Analyze the information, and then answer the following questions.
- (a) If you were a creditor of Xerox, what reaction might you have to the above information?
- (b) If you were an investor in Xerox, what reaction might you have to the above information?
- (c) If you were evaluating the company as cither a creditor or a stockholder, what other information would you be interested in seeing?
- (d) Xerox decided to pay a cash dividend. This dividend was approximately equal to the amount paid in the previous year. Discuss the issues that were probably considered in making this decision.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Mary Walker, president of Rusco Company, considers $27,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $22,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker.
Rusco CompanyComparative Balance Sheetat July 31
This Year
Last Year
Assets
Current assets:
Cash
$ 22,000
$ 41,400
Accounts Receivable
229,800
219,100
Inventory
256,300
200,200
Prepaid expenses
11,900
23,400
Total current assets
520,000
484,100
Long-term investments
111,000
155,000
Plant and equipment
874,000
757,000
Less accumulated depreciation
213,500
192,100
Net plant and equipment
660,500
564,900
Total assets
$ 1,291,500
$ 1,204,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$ 237,700
$ 176,400
Accrued liabilities
8,700…
Suppose you are conducting an analysis of the financial performance of Blue Hamster Manufacturing Inc. over the past three years.
The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company’s relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios.
Ratios Calculated
Year 1
Year 2
Year 3
Price-to-cash-flow
6.40
8.32
9.32
Inventory turnover
12.80
15.36
17.20
Debt-to-equity
0.20
0.21
0.25
Based on the preceding information, your calculations, and your assumptions, which of the following statements can be included in your analysis report? Check all that apply.
A. The company’s creditworthiness has improved over these three years as evidenced by the increase in its debt-to-equity ratio over time.
B. Blue…
Lucas Hunter, president of Simmons Industries Inc., believes that reporting operating cash flow per share on the income statement would be a useful addition to the company’s just completed financial statements. The following discussion took place between Lucas Hunter and Simmons’ controller, John Jameson, in January, after the close of the fiscal year:Lucas: I’ve been reviewing our financial statements for the last year. I am disappointed that our net income per share has dropped by 10% from last year. This won’t look good to our shareholders. Is there anything we can do about this?John: What do you mean? The past is the past, and the numbers are in. There isn’t much that can be done about it. Our financial statements were prepared according to generally accepted accounting principles, and I don’t see much leeway for significant change at this point.Lucas: No, no. I’m not suggesting that we “cook the books.” But look at the cash flow from operating activities on the statement of cash…
Chapter 1 Solutions
FINANCIAL ACCOUNTING>IC<
Ch. 1 - Prob. 1QCh. 1 - Prob. 2QCh. 1 - Prob. 3QCh. 1 - Accounting is ingrained in our society and is...Ch. 1 - Prob. 5QCh. 1 - Prob. 6QCh. 1 - What are the three main types of business...Ch. 1 - Prob. 8QCh. 1 - Prob. 9QCh. 1 - Prob. 10Q
Ch. 1 - Prob. 11QCh. 1 - What are the three main categories of the...Ch. 1 - Prob. 13QCh. 1 - Prob. 14QCh. 1 - Prob. 15QCh. 1 - Which of these items are liabilities of White...Ch. 1 - How are each of the following financial statements...Ch. 1 - What is the purpose of the management discussion...Ch. 1 - Prob. 19QCh. 1 - Prob. 20QCh. 1 - Prob. 21QCh. 1 - Prob. 1.1BECh. 1 - Match each of the following types of evaluation...Ch. 1 - Indicate in which part of the statement of cash...Ch. 1 - Prob. 1.4BECh. 1 - Prob. 1.5BECh. 1 - Prob. 1.6BECh. 1 - Indicate which statement you would examine to find...Ch. 1 - Prob. 1.8BECh. 1 - Prob. 1.9BECh. 1 - Prob. 1.10BECh. 1 - Prob. 1.11BECh. 1 - Prob. 1.1DIECh. 1 - Prob. 1.2DIECh. 1 - Prob. 1.3ADIECh. 1 - Prob. 1.3BDIECh. 1 - Here is a list of words or phi uses discussed in...Ch. 1 - Prob. 1.3ECh. 1 - Prob. 1.4ECh. 1 - Prob. 1.5ECh. 1 - Prob. 1.6ECh. 1 - Prob. 1.7ECh. 1 - Prob. 1.8ECh. 1 - Prob. 1.9ECh. 1 - Prob. 1.10ECh. 1 - Prob. 1.11ECh. 1 - Prob. 1.12ECh. 1 - Prob. 1.13ECh. 1 - Prob. 1.14ECh. 1 - Prob. 1.15ECh. 1 - Prob. 1.16ECh. 1 - Prob. 1.17ECh. 1 - Prob. 1.1APCh. 1 - Financial decisions often place heavier emphasis...Ch. 1 - Prob. 1.3APCh. 1 - Prob. 1.4APCh. 1 - Prob. 1.5APCh. 1 - Prob. 1.1EYCTCh. 1 - Prob. 1.2EYCTCh. 1 - Prob. 1.3EYCTCh. 1 - INTERPRETING FINANCIAL STATEMENTS Xerox was not...Ch. 1 - Prob. 1.5EYCTCh. 1 - Prob. 1.6EYCTCh. 1 - Prob. 1.7EYCTCh. 1 - Prob. 1.8EYCTCh. 1 - Prob. 1.9EYCTCh. 1 - Prob. 1.10EYCTCh. 1 - Prob. 1.1IFRSCh. 1 - Prob. 1.2IFRSCh. 1 - Prob. 1.3IFRS
Knowledge Booster
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.Similar questions
- 6) During the year, Lasko's repaid $12,500 in long-term debt, borrowed $8,400, paid $611 in interest and $740 in dividends, and had an operating cash flow of $16,207. The firm acquired $33,500 in new fixed assets and sold $8,400 of old assets. Net working capital declined by $1,592 during the year. What is the annual cash flow to stockholders?arrow_forwardMary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker. Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker. Rusco CompanyComparative Balance Sheetat July 31 This Year Last Year Assets Current assets: Cash $ 8,000 $ 21,000 Accounts receivable 120,000 80,000 Inventory 140,000 90,000 Prepaid expenses 5,000 9,000 Total…arrow_forwardMary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker. Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker. Rusco CompanyComparative Balance Sheetat July 31 This Year Last Year Assets Current assets: Cash $ 8,000 $ 21,000 Accounts receivable 120,000 80,000 Inventory 140,000 90,000 Prepaid expenses 5,000 9,000 Total…arrow_forward
- During the year, D-Bat increased it accounts receivable by $150, decreased its STNP by $185 and decreased its accounts payable by $80, paid dividends of $50, increased its LTD by $100, decreased its inventory by $50 and issued $25 of common stock. What is the cash flow from financing activities?arrow_forwardLast year, National Co. reported negative net cash flow and negative free cash flow. However, its cash on the balance sheet increased. Which of the following could explain these changes in its cash position? a. The company had a sharp increase in its depreciation and amortization expenses. b. The company had a sharp increase in its inventories. c. The company issued new common stock. d. None of the choicesarrow_forward1. Analysts who follow Howe Industries recently noted that, relative to the previous year, the company's net cash provided from operations increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation? a. The company issued new common stock. b. The company made large investments in fixed assets. c. The company sold a division and received cash in return. d. The company cut its dividend. e. The company issued new long-term debt. 2. Which of the following statements is CORRECT? a. Other things held constant, the higher a firm's total debt to total capital ratio, the higher its TIE ratio will be. b. Debt management ratios show the extent to which a firm's managers are attempting to reduce risk through the use of financial leverage. The higher the total debt to total capital ratio, the lower the risk. c. Debt management…arrow_forward
- Howe industries reported a positive cash flow from operations on its cash flow statement, yet cash on the balance sheet decreased relative to the prior year's balance. Which of the following could explain this? Question 11 options: The company issued long-term debt The company issued new common stock The company made a large investment in fixed assets Depreciation expense increasedarrow_forwardDuring the past year, a company had cash flow to creditors, an operating cash flow, and net capital spending of $30,591, $69,573, and $30,460, respectively. The net working capital at the beginning of the year was $12,352 and it was $14,650 at the end of the year. What was the company's cash flow to stockholders during the year? Options $8,522 $2,298 $4,478 $6,224 $10,820arrow_forwardStatement of Cash flows Analysis Analyze the statement of cash flows of the companies and find the answers of the followings 1. Are cash flows from operations positive? What is the trend for three years? 2. Is operating cash flows smaller or larger than net income? 3. Did the company purchase any property plant and equipment during the last year? 4. Did the company obtain loan during the last year? 5. Did the company pay dividend?arrow_forward
- From Davis Corporation, LLC's statement of cash flows, discuss what may have caused the greatest change in the company's cash flow position for 20x9 compared to the prior year.arrow_forwardThe 2008 balance sheet of Maria's Tennis Shop, Inc., showed $870,000 in the common stock account and $6 million in the additional paid-in surplus account. The 2009 balance sheet showed $905,000 and $7.8 million in the same two accounts, respectively. The company paid out $620,000 in cash dividends during 2009. What was the cash flow to stockholders for the year?arrow_forwardPrepare and Interpret a Statement of Cash Flows; Free Cash Flow Mary Walker, president of Rusco Company, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker. The following additional information is available for this year. a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $8,000. The equipment originally cost $20,000 and had accumulated depreciation of $10,000. c. Long-term investments that cost $20,000 were sold during the year for $30,000. d. The company did not retire any bonds payable or repurchase any of its common stock. Required: 1. Using the indirect method, compute the net cash provided by operating activities for this year. 2. Using the data from (1) above,…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
How To Analyze an Income Statement; Author: Daniel Pronk;https://www.youtube.com/watch?v=uVHGgSXtQmE;License: Standard Youtube License