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Cornerstones of Financial Accounti...

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Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

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

The Bookbarn Inc. is a retail seller of new books in a moderate-sized city. Although initially very successful, The Bookbarn’s sales volume has declined since the opening of two competing bookstores 2 years ago. The accountant for The Bookbarn prepared the following statement of cash flows at the end of the current year:

Chapter 11, Problem 61.1C, Profitability Declines and the Statement of Cash Flows The Bookbarn Inc. is a retail seller of new

Your analysis suggests that The Bookbarn’s net income will continue to decline by $8,000 per year to $18,500 as sales continue to fall. Thereafter, you expect sales to stabilize.

Required:

What will happen to the amount of cash provided by operations as net income decreases?

To determine

Concept introduction:

Cash flow statement also known as statement of cash flows shows inflow and outflow of cash and it is divided into three categories- operating, investing and financing activities. The operating cash flow shows the position of cash from the operations of the company.

The amount of cash, in case of decrease in net income, flow from the operating activities.

Explanation

STATEMENT OF CASH FLOW FOR THE BOOKBARN INC.

Cash Flow from operating activities Amount ($)
Net Income for the period 18,500
Adjustment required for reconciliation
Depreciation 38,500
Loss on disposal of property, plant and equipment 2,100
Increase in Accounts receivable (1,200)
Increase in Inventory (3,800)
Incre

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