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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Communication

Tidewater Inc., a retailer, provided the following financial information for its most recent fiscal year:

Net income $945,000
Return on invested capital 8%
Cash flows from operating activities $(1,428,000)
Cash flows from investing activities $600,000
Cash flows from financing activities $900,000

The company's Cash flows from operating activities section is as follows:

Net income $ 945,000
Depreciation 210,000
Increase In accounts receivable (1,134,000)
Increase in inventory (1,260,000)
Decrease m accounts payable (189,000)
Net cash flow from operating activities $(1,428,000)

An examination of the financial statements revealed the following additional information:

Ÿ Revenues increased during the year as a result of an aggressive marketing campaign aimed at increasing the number of new “Tidewater Card” credit card customers. This is the company's branded credit card, which can only be used at Tidewater stores. The credit card balances are accounts receivable on Tidewater's balance sheet.

Ÿ Some suppliers have made their merchandise available at a deep discount. As a result, the company purchased large quantities of these goods in an attempt to improve the company's profitability.

Ÿ In recent years, the company has struggled to pay its accounts payable on time. The company has improved on this during the past year and is nearly caught up on overdue payables balances.

Ÿ The company reported net losses in each of the two prior years.

Write a brief memo to your instructor evaluating the financial condition of Tidewater Inc.

To determine

Statement of cash flows:

Statement of cash flow is a financial statement that shows the cash and cash equivalents of a company for a particular period of time. It shows the net changes in cash, by reporting the sources and uses of cash as a result of operating, investing, and financing activities of a company.

Cash flows from investing activities:

Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

Cash flows from financing activities:

Cash provided by or used in financing activities is a section of statement of cash flows. It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.

Cash flows from operating activities:

These refer to the cash received or cash paid in day-to-day operating activities of a company.  In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.

To Write: A brief memo to the instructor evaluating the financial condition of Incorporation T.

Explanation

Write a brief memo to the instructor evaluating the financial condition of Incorporation T.

Memo:

From,

XYZ

To,

The Instructor

Date: February 2, 2018.

Subject: Evaluating the financial condition of Incorporation T.

Dear Sir,

Incorporation T is a retailer which is facing net losses for the past two years. Though the incorporation has returned to profitability, there are many possible dangers which indicate that the future projections of the incorporation are highly uncertain. Such possible dangers are discussed as follows:

  • A new marketing campaign initiated by the incorporation by providing credit cards to the customers has earned many customers who are purchasing the goods on credit using the incorporation’s credit card. This has helped the company to return to profitability by earning more revenue. In this a danger is there for the incorporation that providing more credit cards will lead to more accounts receivables...

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