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Assign 2 Chapter 5 Understanding The Financial Statements Prob 8 Answer Cabrera 2019-2020

The document provides information to prepare a statement of cash flows for Maris Corporation for the year ended December 31, 20X1. The key details are: 1) Net cash provided by operating activities was PHP 700,000, exceeding net income of PHP 250,000 due to non-cash expenses like depreciation. 2) Investing activities used PHP 590,000 in cash, mostly for plant/equipment purchases funded by a rise in accounts payable. 3) Financing activities used PHP 90,000 in cash, with

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1K views5 pages

Assign 2 Chapter 5 Understanding The Financial Statements Prob 8 Answer Cabrera 2019-2020

The document provides information to prepare a statement of cash flows for Maris Corporation for the year ended December 31, 20X1. The key details are: 1) Net cash provided by operating activities was PHP 700,000, exceeding net income of PHP 250,000 due to non-cash expenses like depreciation. 2) Investing activities used PHP 590,000 in cash, mostly for plant/equipment purchases funded by a rise in accounts payable. 3) Financing activities used PHP 90,000 in cash, with

Uploaded by

mhikeedelantar
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© © All Rights Reserved
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UNDERSTANDING THE FINANCIAL STATEMENTS

PROBLEM 1: (Statement of Cash Flows)

PREPARE STATEMENT OF CASH FLOW:

Adjustments
= 20,000 increase
= 10,000 increase
= 30,000 increase
= 30,000 decease

= 10,000 decrease
= 600,000 increase

= 250,000 increase
-
= 20,000 decrease

= 60,000 increase

1
2
PREPARE STATEMENT OF CASH FLOW:

Maris Corporation
Statement of Cash Flows
For the Year Ended December 31, 20X1

Operating Activities:
Net income (earnings after taxes)................ PHP 250,000
Add items not requiring an outlay of cash:
Depreciation Expense..................... 230,000 230,000
Cash flow from operations 480,000
Increase in accounts receivable… (10,000)
Increase in inventory.................. (30,000)
Decrease in prepaid expenses.... 30,000
Increase in accounts payable..... 250,000
Decrease in accrued expenses... (20,000)
Net change in non-cash working capital..... 220,000
Net Cash Provided By Operating Activities…….. 700,000

Investing Activities:
Decrease in investments..................... 10,000
Increase in plant and equipment......... (600,000)
Net Cash Used In Investing Activities................ (590,000)

Financing Activities:
Increase in bonds payable .................. 60,000
Preferred stock dividends paid........... (10,000)
Common stock dividends paid........... (140,000)
Net Cash Used In Financing Activities……….. (90,000)
Net Increase (Decrease) In Cash 20,000

Cash, at beginning of year 100,000


Cash, end of year PHP 120,000

3
ANSWERS:

A. Net Income…………………………………….. 250,000


Net Cash Provided by Operating Activities… (700,000)
Difference = 450,000
The net cash flows from operating activities will exceed the balance of net income for the
reason that we add back depreciation expense of 230,000 and the adjustments of accounts
(increase and decrease. The reader of the cash flow statement gets important insights as
to how much cash flow was developed from daily operations.

B. A considerable rise in accounts payable (250,000) helped fund the 600,000 (gross) and
370,000 (net) increase in plant and equipment. This isn't a good scenario to be in. Short-
term funding sources can dry up at any time, whereas capital asset requirements are
constantly present. To go along with earnings, the company could want to pursue longer-
term funding, such as a mortgage.

C. Book value per share = Ordinary share equity


No. of Ordinary shares outstanding

20x0: 20x1:
Book value per share = 1,300,000* Book value per share = 1,400,000**
150,000 shares 150,000 shares

Book value per share= 8.66 Book value per share= 9.33
*20x0 **20x1
Total Owner’s Equity… 1,390,000 Total Owner’s Equity… 1,490,000
Preferred Stock………. (90,000) Preferred Stock………. (90,000)
Ordinary Share Equity= 1,300,000 Ordinary Share Equity= 1,400,000

D. Market value = 2.8 × 9.33 = 26.12

Basic EPS= Net Income ÷ No. of Ordinary shares outstanding


Basic EPS= 250,000 ÷ 150,000 shares
Basic EPS= 1.67

4
P/E ratio= Market value ÷ EPS
P/E ratio = 26.12/ 1.67
P/E ratio = 15.64 or 16

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