You are the CFO for Tom & Jerry’s, Inc. Together with Tom Fheelein and Jerry Rho
ID: 2498139 • Letter: Y
Question
You are the CFO for Tom & Jerry’s, Inc. Together with Tom Fheelein and Jerry Rhodeint, the company’s two shareholders, you are examining the following statement of cash flows which they prepared for Tom & Jerry’s, Inc. for the year ended January 31, 2015.
TOM & JERRYS’S, INC.
Statement of Cash Flows
For the Year Ended January 31, 2015
Sources of cash
From sales of merchandise
$380,000
From sale of capital stock
410,000
From sale of investment (purchased below)
80,000
From depreciation
55,000
From issuance of note for truck
20,000
From interest on investments
6,000
Total sources of cash
951,000
Uses of cash
For purchase of fixtures and equipment
320,000
For merchandise purchased for resale
258,000
For operating expenses (including depreciation)
160,000
For purchase of investment
75,000
For purchase of truck by issuance of note
20,000
For purchase of treasury stock
10,000
For interest on note payable
3,000
Total uses of cash
846,000
Net increase in cash
$105,000
Tom claims that this statement of cash flows is an excellent portrayal of a superb first year with cash increasing $105,000. Jerry replies that it was not a superb first year. Rather, he says, the year was an operating failure as the statement is presented incorrectly and $105,000 is not the actual increase in cash. The cash balance at the beginning of the year was $140,000.
Instructions
A. Using the data provided, prepare a statement of cash flows using the indirect method. The only noncash item in the income statement is depreciation. The purchase/sale of the investment and any resulting gain/loss are investing (not operating) activities. Hint: You may need to figure out net income for the year.
B. With whom do you agree, Tom or Jerry? Explain your position.
TOM & JERRYS’S, INC.
Statement of Cash Flows
For the Year Ended January 31, 2015
Sources of cash
From sales of merchandise
$380,000
From sale of capital stock
410,000
From sale of investment (purchased below)
80,000
From depreciation
55,000
From issuance of note for truck
20,000
From interest on investments
6,000
Total sources of cash
951,000
Uses of cash
For purchase of fixtures and equipment
320,000
For merchandise purchased for resale
258,000
For operating expenses (including depreciation)
160,000
For purchase of investment
75,000
For purchase of truck by issuance of note
20,000
For purchase of treasury stock
10,000
For interest on note payable
3,000
Total uses of cash
846,000
Net increase in cash
$105,000
Explanation / Answer
Tom and Jerry's Inc. Statement of Cash Flows as on 31 January 2015 = using Indirect Method (All values in $) Cash Flows from Operating Activities Net Income (Sales - COGS - Depreciation) 220000 Add : Depreciation 22000 Less : Interest on Investments -6000 16000 Decrease in Inventories 152000 Net Cash Inflows from Operating Activities 388000 Cash Flows from Investing Activities Purchase of Fixed Assets -320000 Purchase of Investments -75000 Purchase of Treasury Stock -10000 -405000 Cash Flows from Financing Activities Net Notes issued less paid 0 Interest on Note -3000 -3000 Net Decrease in Cash and Cash Equivalents -20000 Cash Balance at the beginning of the year 140000 Cash Balance at the end of the year 120000 From the cash flow statement drawn, it can be inferred that Jerry has made an accurate assessment of the financial position of the Company.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.