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ORIE 350 Homework #3 Due September 18, 2007 Please put your section number on your homework 1. Bobmart Company has the following annual and year-ending data: Year: 2005 Year: 2004 Net Sales 1,200,000 1,350,000 Cost of Goods Sold 640,000 670,000 Salaries Expense 210,000 240,000 Salaries Payable 24,000 16,000 Inventory 340,000 390,000 Accounts Payable 120,000 135,000 Accounts Receivable 240,000 270,000 Find the cash payments for purchases, the cash collected from customers, and the cash salaries paid to employees for Bobmart for fiscal 2005. CPP = CGS + Inv. – A/P = 640,000 +(340,000 – 390,000) – (120,000 – 135,000) CPP = \$605,000 CCfC = Net Sales – A/R = 1,200,000 – (240,000 – 270,000) = \$1,230,000 CSPE = Salaries Expense – Salaries Payable = 210,000 – (24,000 – 16,000) = \$202,000 2. Prepare the complete statement of cash flows using the indirect method and the following information for Gary Bonds Corporation for the year ended Dec. 31, 2006. Net Income was \$120,000 Bonds Payable increased \$50,000 Gain on sale of equipment of \$20,000 (the equipment’s book value was \$30,000). A/R decreased \$50,000 A/P decreased \$20,000 Prepaid Rent increased \$10,000 Dividends totaling \$20,000 were paid. Depreciation was \$20,000 Common Stock increased \$50,000 Land increased \$100,000 Beginning cash was \$10,000 Ending Cash was \$180,000 4-1 Solutions

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Gary Bonds Corporation Statement of Cash Flows Year Ended Dec. 31, 2006 Operations Net Income \$120,000 Depreciation Expense 20,000 Gain on Sale of Equipment (20,000) (See p. 178 in text!) Accounts Receivable Decrease 50,000 Accounts Payable Decrease (20,000) Prepaid Rent Increase (10,000) Net cash flow from operations \$140,000 Investing Purchase of Land (100,000) Cash from sale of equipment 50,000 Net cash flow from investing (50,000) Financing Sale of Bonds 50,000 Sale of Common Stock 50,000 Dividends paid (20,000) Net cash flow from financing 80,000 Net cash flow, total 170,000 4-2 Solutions
4.28 (Nokia;   calculating   and   interpreting   cash   flow   from   operations.)  (Amounts in Millions of  ¤ ) a. Year 8 Year 9 Year 10 Year 11 Net Income .................. ¤ 1,032 ¤ 1,689 ¤ 2,542 ¤ 3,847 Depreciation  Expense ................... 465 509 665 1,009 (Inc.) Dec. in Accounts  Receivable ................ (272) (1,573) (982) (2,304) (Inc.) Dec. in Inven- tories ........................ (121) (103) (362) (422) (Inc.) Dec. in Pre- payments ................. 77 (17) (33) 49 Inc. (Dec.) in Accounts  Payable .................... 90 140 312 458 Inc. (Dec.) in Other  Current Liabilities..            450             1,049                867                923     Cash Flow from  Operations ............... ¤      1,721     ¤      1,694     ¤      3,009     ¤      3,560     b. The addback for depreciation, a noncash expense, causes cash flow  from   operations   to   exceed   net   income  each   year,   except   Year   11.  Inventories increased in line with increases in net income.   Nokia  increases its accounts payable to finance the increased inventories.  The firm also increased other current liabilities to finance growing  operations.  Variations in the relation between net income and cash  flow from operations result from variations in accounts receivable.  Unusually large increases in accounts receivable in Year 9 and Year  11 cause cash flow from operations to approximately equal net income  in Year 9 and to be less than net income in Year 11.  The variations in

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