27. Prepare a statement of cash flows for the Crosby Corporation. Follow the general procedures indicated in Table 2–10 on page 38 .
Statement of cash flows
(L04)
Current Assets Liabilities
Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 Accounts payable . . . . . . . . $ 20,000
Accounts receivable . . . . . . . . . . . . . 22,500 Notes payable . . . . . . . . . . . 30,000
Inventory . . . . . . . . . . . . . . . . . . . . . . 37,500 Bonds payable . . . . . . . . . . . 75,000
Prepaid expenses . . . . . . . . . . . . . . . 18,000
Fixed Assets Stockholders’ Equity
Plant and equipment (gross) . . . . . . . $375,000 Common stock . . . . . . . . . . $112,500
Paid-in capital . . . . . . . . . . . 37,500
Less: Accumulated depreciation . . . . 75,000 Retained earnings . . . . . . . . 118,000
Net plant and assets . . . . . . . . . . . . . 300,000 Total liabilities and
Total assets . . . . . . . . . . . . . . . . . . . . $393,000 stockholders’ equity . . . . . $393,000
CROSBY CORPORATION
Income Statement
For the Year Ended December 31, 2008
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,200,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000
Gross profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000
Selling and administrative expense . . . . . . . . . . . . . . . . . . . . 420,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Statement of Retained Earnings
For the Year Ended December 31, 2008
Retained earnings, balance, January 1, 2008 . . . . . . . . . . . . . . . . . . . . $500,000
Add: Earnings available to common stockholders, 2008 . . . . . . . . . . 150,000
Deduct: Cash dividends declared and paid in 2008 . . . . . . . . . . . . . 50,000
Retained earnings, balance, December 31, 2008 . . . . . . . . . . . . . . . . . $600,000
CROSBY CORPORATION
Income Statement
For the Year Ended December 31, 2008
Earnings after taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
Earnings available to common stockholders . . . . . . . . . . . . . $ 150,000
Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,000 $ 440,000
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 50,000
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 720,000 890,000
Long-term liabilities:
Bonds payable, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 120,000
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790,000 1,010,000
Comparative Balance Sheets
For 2007 and 2008
Year-End
2007
Year-End
2008
Assets
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,000 $ 100,000
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 350,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 430,000
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 30,000
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830,000 910,000
Investments (long-term securities) . . . . . . . . . . . . . . . . . . . 80,000 70,000
Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,400,000
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . 1,000,000 1,150,000
Net plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,250,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,910,000 $2,230,000
Stockholders’ equity:
Preferred stock, $100 per value . . . . . . . . . . . . . . . . . . . . . . 90,000
Common stock, $1 par value . . . . . . . . . . . . . . . . . . . . . . . . 120,000 120,000
Capital paid in excess of par . . . . . . . . . . . . . . . . . . . . . . . . 410,000 410,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 600,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . 1,120,000 1,220,000
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . $1,910,000 $2,230,000
(The following questions apply to the Crosby Corporation, as presented in
Problem 27.)
28. Describe the general relationship between net income and net cash flows from operating activities for the firm.
29. Has the buildup in plant and equipment been financed in a satisfactory manner?
Briefly discuss.
my answers
CROSBY CORPORATION
Income Statement
for the Year Ended December 31, 2008
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,200,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 1,300,000
Gross profits . . . . . . . . . . . . . . . . . . . . . . . . . 900,000
Selling and administrative expense . . . . . . . . 420,000
Depreciation expense . . . . . . . . . . . . . . . . . . . 150,000
Operating income . . . . . . . . . . . . . . . . . . . . . . 330,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Earnings before taxes . . . . . . . . . . . . . . . . . . . 240,000
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Additional Details
CROSBY CORPORATION
Income Statement
For the Year Ended December 31, 2008
Earnings after taxes . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
Preferred stock dividends . . . . . . . . . . . . . . . . . . . . .10,000
Earnings available to common stockholders . . . . . . $ 150,000
Common shares outstanding . . . . . . . . . . . . . . . . . . 120,000
Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25
Statement of Retained Earnings
For the Year Ended December 31, 2008
Retained earnings, balance, January 1, 2008 . . . . . . . . . . $500,000
Add: Earnings available to common stockholders, 2008 . . 150,000
Deduct: Cash dividends declared and paid in 2008 . . . . . . 50,000
Retained earnings, balance, December 31, 2008 . . . . . . . $600,000
Comparative Balance Sheets
For 2007 and 2008
Year-End
2007
Year-End
2008
Assets
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,000 $ 100,000
Accounts receivable (net) . . . . . . . . . . . 300,000 350,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . 410,000 430,000
Prepaid expenses . . . . . . . . . . . . . . . . . . 50,000 30,000
Total current assets . . . . . . . . . . . . . . . . . 830,000 910,000
Investments (long-term securities) . . . . . 80,000 70,000
Plant and equipment . . . . . . . . . . . . . . . . .2,000,000 2,400,000
Less: Accumulated depreciation . . . . . . . 1,000,000 1,150,000
Net plant and equipment . . . . . . . . . . . . . 1,000,000 1,250,000
Total assets. .
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . $ 250,000 $ 440,000
Notes payable . . . . . . . . . . . . . . . . . . . . . 400,000 400,000
Accrued expenses . . . . . . . . . . . . . . . . . . 70,000 50,000
Total current liabilities . . . . . . . . . . . . . . 720,000 890,000
Long-term liabilities:
Bonds payable, 2012 . . . . . . . . . . . . . . . 70,000 120,000
Total liabilities . . . . . . . . . . . . . . . . . . . . 790,000 1,010,000
28. Describe the general relationship between net income and net cash flows from operating activities for the firm.
Net income
Net income is the change in owners represents the change in owners’ equity during a period. This does not include the effects of any additional investments or withdrawals by the owners. Cash flow is the movement of cash in or out of a business, project of financial product.
29. Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss.
does it look right so far?
No. The question is to DESCRIBE the general relationship between net income and net cash flows from operating activities for the firm. Exactly what was their relationship? Did one go up and one go down? Did they both go up, or both go down?
You haven't answered the question about the buildup at all.
To determine if the buildup in plant and equipment has been financed in a satisfactory manner, we need to analyze the information provided in the comparative balance sheets for 2007 and 2008, as well as the income statement for the year ended December 31, 2008.
Looking at the comparative balance sheets, we can see that the net plant and equipment increased from $1,000,000 in 2007 to $1,250,000 in 2008. This indicates that there has been a buildup in plant and equipment over this time period.
To assess the financing of this buildup, we can consider the sources of funds. From the balance sheet, we can see that there were long-term liabilities in the form of bonds payable, which increased from $70,000 in 2007 to $120,000 in 2008. This suggests that part of the financing for the buildup in plant and equipment came from issuing bonds.
However, it is important to note that there is not enough information provided to fully evaluate the financing of the buildup. We do not know if the increase in long-term liabilities is sufficient to cover the increase in plant and equipment, or if there were any other sources of funds used.
Therefore, based on the limited information provided, we cannot definitively determine if the buildup in plant and equipment has been financed in a satisfactory manner.
To determine if the buildup in plant and equipment has been financed in a satisfactory manner, we need to analyze the information provided in the comparative balance sheets for 2007 and 2008.
In 2007, the net value of plant and equipment was $1,000,000, and in 2008, it increased to $1,250,000. This indicates that there has been a buildup in plant and equipment over the year.
To finance this increase, we need to examine the liabilities section of the balance sheet. In 2007, there were no long-term liabilities related to the financing of plant and equipment. However, in 2008, there is a long-term liability of $120,000 in the form of bonds payable.
Since the increase in plant and equipment has been financed through long-term borrowing (bonds payable), it can be considered as a satisfactory manner of financing. Borrowing funds for longer-term investments like plant and equipment is a common practice for businesses, as it allows them to spread out the cost over time while using the assets to generate revenue.
However, it is important to consider the specific terms and conditions of the bonds payable, such as interest rates and repayment terms, to ensure that the financing arrangement is favorable for the firm.