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Cornerstones of Financial Accounti...

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ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Preparing the Statement of Cash Flows

The comparative balance sheets for Beckwith Products Company are presented below.

Chapter 11, Problem 47E, Preparing the Statement of Cash Flows The comparative balance sheets for Beckwith Products Company

Additional Information:

1. Net income for 2019 was $58,400.

2. Cash dividends of $25,000 were declared and paid during 2019.

3. During 2019, Beckwith issued $50,000 of notes payable and repaid $35,000 principal relating to notes payable.

4. Common stock was issued for $50,000 cash.

5. Depreciation expense was $18,650, and there were no disposals of equipment.

Required:

1. Prepare a statement of cash flows (indirect method) for Beckwith Products for 2019.

2. Compute the following cash-based performance measures: (a) free cash flow and (b) cash flow adequacy. ( Note: Assume that the average amount of debt maturing over the next 5 years is $85,000. Round ratio to two decimal places.)

3. CONCEPTUAL CONNECTION What can you conclude by examining the patterns in Beckwith’s cash flows?

To determine

(a)

Introduction:

Cash from operating activities more often than not alludes to the main segment of the announcement of cash streams. Cash from operating activities centers around the cash inflows and surges from an organization’s fundamental business activities of purchasing and selling stock, giving administrations, and so on.

To choose:

Prepare a statement of cash flow (indirect method) for Beckwith Product for 2019.

Explanation

Cash flow statement for operating activity of the Beckwith product

Particular Detail Amount ($)
Net income as per income statement
Add: Depreciation
Add: increase in accounts receivable
Less: Decrease in inventory
Add: Increase in accounts payable
Add: internal payable
Less: Wages payable
Cash provided operating activity.
18650
2900
(9300)
2100
3500
(900)
58,400

16950
75350

Cash flow statement for investing activity of the Beckwith product

Particular Detail Amount ($)
Purchase of plant equipment (103400)

Property plant and equipment accounts

To determine

(b)

Introduction:

A company’s free cash how represents the cash flow that a company is able generate after considering the maintenance or expansion of its assets (capital expenditure) and the payment of dividends. Having positive free cash flow allows a company to pursuer profit-generating opportunities. However, negative free cash flow is not a necessarily a bad thing.

Cash flow adequacy Ratio: a second useful measure is the cash flow adequacy ratio. The cash adequacy ratio provides a measure of the company’s ability to meet its maturing debt obligation with its operating cash flow.

To choose:

Compute the following cash-based performance measure

  1. Free cash flow
  2. Cash flow adequacy
To determine

(c)

Introduction:

A company’s free cash how represents the cash flow that a company is able generate after considering the maintenance or expansion of its assets (capital expenditure) and the payment of dividends. Having positive free cash flow allows a company to pursuer profit-generating opportunities. However, negative free cash flow is not a necessarily a bad thing.

Cash flow adequacy Ratio: a second useful measure is the cash flow adequacy ratio. The cash adequacy ratio provides a measure of the company’s ability to meet its maturing debt obligation with its operating cash flow.

To choose:

What can you conclude by examining the patterns in Beckwith’s cash flow?

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