. Given the financial information for the A.E Neuman Corporation answer the foll

Question

. Given the financial information for the A.E Neuman Corporation answer the following question:

                a) Prepare a statement of cash flows for the year ending 2007

                A.E. Neuman Corporation -- Year-end Balance Sheets

                ASSETS 2006 2007

                Cash $ 45,000 $ 50,000
                Marketable Securities 175,000 160,000
                Accounts Receivable 240,000 220,000
                Inventories 230,000 275,000
                Investments 70,000 55,000

                Plant and Equipment 1,300,000 1,550,000
                Less Accumulated Depreciation -450,000 -600,000
                Net Plant and Equipment 850,000 950,000

                Total Assets $1,610,000 $1,710,000

                LIABILITIES AND STOCKHOLDERS

Explanation / Answer

I looked at this question for like thirty minutes. I have made an error, and did not get the right answer, but I cannot find it. Please double check that there is no extra information given in your textbook. I am sorry I could not be of more assitance. Regardless, this explains the reason for the statement of cash flows, how it works, and shows the sections of it. The statement of cash flows MUST reflect the exact differenct in the balance sheet.

*Chegg removes formatting, so I'm sorry if it is slightly difficult to read

There are three sections to a statement of cash flows. They are operating, investing, and financing. The purpose of the statement of cash flows is to show exactly how cash was generated and spent over a time period. It shows how the balance in cash changes from one year to the next.

Operating

The operating section of the statement of cashflows shows how much cash was generated during a given time period. Generally, a year or quarter. This is found by taking the net income from the income statement and adding back all non-cash expenses. This includes things like depreciation and loss from sale of equipment or investment. We also must make adjustments based on the change in accounts receivable or payable.

If the accounts receivable increases, that means we recorded more revenue than we were actually paid for, so we subtract the difference so that we don't overstate the actual amount of cash we received during the period. Similarly, (but the opposite) if the accounts payable increase during a period it means that we recorded more expenses during the period than we actually paid, so we add the difference to cash because we didn't actually spend any money.

In short, the operating section shows how much cash the business generated.

Investing

The investing section includes activities that we do to increase the company's operations. These include the purchase or sale of land, equipment, and buildings. In addition, this section includes any investments made in other companies, such as buying stock in other companies.

Financing

The financing section consists of how the company raises money. It has two options: debt or equity. Either a business gets a loan or sells stock (or corporate bonds; or if it is a propietorship, the owner invests money). This section reports how much money was raised through financing for a time period.

Before we make the statement of cashflows, we need to make some calculations to find the difference between the accounts on the balance sheet.

ASSETS 2006 - 2007

Cash $5,000 <--- This is a check figure, the statement of cash flows must show an increase of $5,000
Marketable Securities (15,000) <--- means we sold marketable securities and got some cash for them
Accounts Receivable (20,000) <--- means some of those accounts finally paid us
Inventories 45,000 <--- means we have tied up some of our cash in our inventory
Investments (15,000) <--- means we sold some investments

Plant and Equipment (250,000) <--- means we purchased some equipment
Less Accumulated Depreciation 150,000 <--- depreciation will always increase, but it is a non-cash expense
Net Plant and Equipment 100,000 <-- simply the difference between our new purchases and depreciation

Total Assets $100,000 <--- irrelevant for our purposes

LIABILITIES AND STOCKHOLDERS

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