Chapter 16 - Problem 16-1B (40 minutes) Part 1 GAZELLE...

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Problem 16-1B (40 minutes) Part 1 GAZELLE CORPORATION Statement of Cash Flows For Year Ended December 31, 2008 Cash flows from operating activities Net income. ...................................................................... $158,100 Adjustments to reconcile net income to net cash provided by operating activities Decrease in accounts receivable ($80,750 - $77,100). ....... 3,650 Decrease in inventory ($250,700 - $240,600). ............. 10,100 Decrease in prepaid expenses ($17,000 - $15,100). ......... 1,900 Decrease in accounts payable ($102,000 - $17,750). ....... (84,250) Depreciation expense. .................................................. 38,600 Loss on disposal of equipment. ................................... 2,100 Net cash provided by operating activities. ....................... $130,200 Cash flows from investing activities Cash received from sale of equipment. ............................ 26,050 Cash paid for equipment. ................................................. (43,250 ) Net cash used in investing activities. ............................... (17,200) Cash flows from financing activities Cash borrowed on short-term note. ................................. 5,000 Cash paid on long-term note. ........................................... (47,500) Cash received from issuing stock (3,000 x $15). ................ 45,000 Cash paid for dividends. .................................................. (53,600 ) Net cash used in financing activities. ............................... (51,100 ) Net increase in cash. .......................................................... $ 61,900 Cash balance at December 31, 2007. .................................. 61,550 Cash balance at December 31, 2008. .................................. $123,450 Noncash investing and financing activities Purchased equipment for $113,250 by signing a $70,000 long-term note payable and paying $43,250 in cash.
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Problem 16-1B (Continued) Part 2 Gazelle Corporation's dividend payments of $53,600 represent 34% of the $158,100 net income for the year, and 41% of cash inflow provided by operations of $130,200. Further analysis reveals that investing activities used a modest $17,200 and, including the dividends, financing activities used $51,100. This resulted in a $61,900 increase in the company's cash balance for the year, a 101% increase. Companies usually pay dividends that are substantially less than net income. The analysis of cash flows for this company indicates no reason to question the amount of the current dividend. Indeed, the liquidity position of the company did not deteriorate as a result of its cash dividend.
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Problem 16-2B A (60 minutes) GAZELLE CORPORATION Spreadsheet for Statement of Cash Flows For Year Ended December 31, 2008 December 31, 2007 Analysis of Changes December 31, 2008 Debit Credit Balance sheet--debits Cash. ............................................. $ 61,550
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Chapter 16 - Problem 16-1B (40 minutes) Part 1 GAZELLE...

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