CORPORATION
Statement CROSBY of Cash Flows
For the Year Ended December 31, 2008
Cash flows from operating activities:
Net income (earnings after taxes)
Adjustments to determine cash flow from operating activities:
Add back depreciation
Increase in accounts receivable
Increase in inventory
Decrease in prepaid expenses .
Increase in accounts payable
Decrease in accrued expenses .
Total adjustments
Net cash flows from operating activities
Cash flows from investing activities:
Increase in investments (long-term securities)
Increase in plant and equipment
Net cash flows from investing activities
Cash flows from financing activities:
Increase in bonds payable
Preferred stock dividends paid .
Common stock dividends paid
Net cash flows from financing activities
Net increase (decrease) in cash flows .
$160,000
150,000
-50,000
-20,000
20,000
190,000
-20,000
270,000
430,000
-10,000
400,000
390,000
50,000
-10,000
-50,000
-10,000
$30,000
28. Describe the general relationship between net income and net cash flows from
operating activities for the firm.
Both net income and net cash flows from operating are activities derived from actual
expense, purchase, and sales data, which are figures of the operations of the company
Net income or loss is the difference between revenues and expenses, whereas, net
cash flows from operating activities is the cash spent on expenses and received from revenue .
29. Has the buildup in plant and equipment been financed in a satisfactory manner?
Briefly discuss.
In looking at the statement of cash flows we see that Crosby Corporation spent
$390,000 in investing activities, but looking at the operating activities section of the
statement we see that there was only a $190,000 increase in accounts payable and on
the balance sheet notes payable did not increase. This tells us that the purchase of
equipment that was made was mostly purchased with cash and a small amount was
financed on a short-term basis. This is satisfactory as we are not relying on long-term
assets to pay this short-term liability. This is also satisfactory because looking at the
cash received from operating activities enough cash was received to invest in the new equipment that was purch