Max Stevenson owns a local drug store. During the past few years, the economy has been experiencing a period of high inflation. Stevenson has had the policy of withdrawing cash from his business equal to 80% of the company's reported net income. As the business has grown, he has had a CPA prepare the company's financial statements and tax returns. The following is a summary of the company's income statement for the current year:

Revenue $565,000

Cost of goods sold (drugs, etc) 395,000

Gross pofit on items sold 170,000

Operating expenses, including taxes 110,000

Net income 60,000

Even though the business has reported net income each year, it has experienced severe cash flow shortages. The company has had to pay higher prices for its inventory as the company has tried to maintain the same quantity and quality of its goods. For example, last year's cost of goods sold had a historical cost of $250,000 and a replacement cost of $295,000. The current year's cost of goods sold has a replacement cost of $440,000,. Stevenson's personal cash outflows have also grown faster than his withdrawals from the company due to increasing personal demands.

Stevenson asks you as a financial advisor how can the company have income of $60,000 yet he and the company still have a shortage of cash?

  1. 👍 0
  2. 👎 0
  3. 👁 62
asked by Jenny

Respond to this Question

First Name

Your Response

Similar Questions

  1. statistics

    Farmer Max, sells grain to Germany, owns 60 acres of wheat fields. Based on the past experience, he knows that the yield from each individual acre is normally distributed with mean 120 bushels and standard deviation 12 bushels.

    asked by loh on November 23, 2014
  2. calculus

    Sketch the curve y = x^3 - 12x^2 + 36x I already did the question properly it is concave down at (0,4) and concave up at (4,infinity) I found the abs max to be (2,32) and abs min to be (6,0) What I wanted to know is when labeling

    asked by Daniel on November 21, 2011
  3. Calculus

    Find any absolute max/min and local max/min for the function f(x)=x^3-4x+5 on the interval [0,5). Made sure to prove that these points are max/min values. This is what I did so far. f'(x)=3x^2-4=0 3x^2=4 x= 2/sqrt3 The -2/sqrt3 is

    asked by Janet on April 18, 2011
  4. Computer science

    If we have any five numbers. how do we find maximum and minimum number of those. You take the first number and store it in variable Min and Max. Then you take the second number. If that number is larger than the variable Max you

    asked by Sing on December 15, 2006
  5. statistics

    3 different drugs are under consideration for trating a given ailment. in the past 10,000 applications, drug A was sed 2500 times, drug B 4000 times, and drug C 3500 times. when an expert was asked to rank the effectiveness of the

    asked by Albert on November 12, 2009
  6. MATHS

    A woman had $200. she went to the meatshop, a drug store and a book store. she spent four(4) times as much money in the meatshop as in the drug store. she spent $15 less at the book store than at the drug store she then had $5.00

    asked by JERMAINE on February 9, 2010
  7. Art

    Which is the most likely patron for a community mural that will celebrate a city-wide day of reading? National book company. Local department store. Local thrift store. Local bookstore. (MY ANSWER)

    asked by LOVE on March 30, 2016
  8. Calculus (urgent!!)

    Consider the function f(x)=12x^5+60x^4−100x^3+4. For this function there are four important intervals: (−INF,A], [A,B] ,[B,C] , and [C,INF) where A, B, and C are the critical numbers. Find A, B, and C. At each critical number

    asked by Karku on April 1, 2011
  9. psy

    Cathy owes six overdue movies to her local video store. Since each of Cathy’s overdue videos is a comedy, only comedies are currently overdue at Cathy’s local video store. Which one of the following premises, if added to the

    asked by Liz on October 25, 2010
  10. Calculus

    Find the values for which f(x) = x^10-10x and if 0 (less than or equal) to x (which is less than or equal to) 2. a) f(x)has a local max or local min. Indicate which ones are max and which are mins. b) f(x) has a global max or

    asked by joe on October 26, 2008

More Similar Questions