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Cash 24000 21000 accounts receivable 45000 39000

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Cash$24,000$21,000Accounts receivable45,00039,000Inventory30,00027,000Gross fixed assets$42,000$40,000Acc. Depreciation22,00018,000Net fixed assets20,000Total assets$119,000$109,000Liabilities and EquityAccounts payable$25,000$30,000Notes payable50,00040,000Accruals1,0002,000Longterm debts10,0008,000Common stock at par1,0001,000Paidin capital in excess of par4,0004,000Retained earnings28,00024,000Total liabilities and equity$119,000$109,0005.The credit manager at First National Bank has just received the income statement and balance sheet forMagna Fax, Inc. for the year ended December 31,2005. (See Table 3.5.) The bank requires the firm toreport its earnings performance and financial position quarterly as a condition of a loan agreement. Thebank’s credit manager must prepare two key financial statements based on the information sent by MagnaFax, Inc. This will be passed on to the commercial loan officer assigned to this account, so that he mayreview the financial condition of the firm.(a)Prepare a statement of retained earnings for the year ended December 31, 2005.(b)Prepare a summary of cash inflows and cash outflows for the year ended December 31, 2005.(c)Prepare a statement of cash flows for the year ended December 31, 2005, organized by cash flowfrom operating activities, cash flow from investment activities, and cash flow from financingactivities.Answers:
Statement of Cash FlowsFor the Year Ended December 31, 2005Cash InflowsCash OutflowsNet profitsDividends paid$6,500after taxes$10,500Inc. in cash3,000Depreciation4,000Inc. in acct. Rec6,000Inc. in Notes Payable10,000Inc. in Inventory3,000Inc. in LT debts2,000Inc. in Fixed Asset2,000Dec. in Acct Pay.5,000Dec. in accruals1,000Total Inflows$26,500Total Outflows$26,500(c)Magna Fax, Inc.Statement of Cash FlowsFor the Year Ended December 31, 2005Cash flow from operating activities:Net profits after taxes$10,500Depreciation4,000Inc. in Accounts Receivable–6,000Inc. in Inventory–3,000Dec. in Accounts Payable–5,000Dec. in Accruals–$ 500Cash flow from investment activities:Inc. in gross fixed assets–2,000Changes in business interest–$2,000Cash flow from financing activities:Inc. in notes payable$10,000Inc. in longterm debts2,000Changes in S.E.0Dividends paid$5,500Net increase in cash & marketable sec.$3,000Level of difficulty: 4Learning Goal: 2Topic: Statement of Cash Flows

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Term
Spring
Professor
N/A
Tags
Balance Sheet, Depreciation, Generally Accepted Accounting Principles, pattern of cash flows

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