The 2008 comparative balance sheet and income statement of Digital Subscriptions
ID: 2724540 • Letter: T
Question
The 2008 comparative balance sheet and income statement of Digital Subscriptions, Inc., follow. Digital Subscriptions had no noncash investing and financing transactions during 2008. During the year, there were no sales of land or equipment, no issuances of notes payable, no retirements of stock, and no treasury stock transactions. Prepare the 2008 statement of cash flows, formatting operating activities by the indirect method. How will what you learned in this problem help you evaluate an investment?Explanation / Answer
Digital Subscriptions Inc. All Amounts in $ 1. Cash Flow Statement As on December 31, 2008 Cash Flows from Operating Activities Net Income per Income Statement 61600 Add : Depreciation Expense 15300 Add : Interest Expense 24600 Add : Income Tax Expense 16900 56800 Cash Flows before Working Capital Changes 118400 Less : Increase in Accounts Receivable -3400 Add : Decrease in Inventories 5600 Add : Increase in Accounts Payable 1300 Less : Decrease in Accrued Liabilities -600 2900 Cash Inflows from Operating Activities 121300 Cash Flows from Investing Activities Purchase of Land -25100 Purchase of Equipment -22500 -47600 Cash Flows from Financing Activities Repayment of Notes Payable -10000 Issue of Common Stock 8800 Dividends Paid -23000 Income Taxes Paid -16900 Interest Paid -24600 -65700 Net Cash Inflows for the year 8000 Opening Cash/Cash Equivalents 18700 Closing Cash/Cash Equivalents 26700 2. The statement given above provides details of the sources and utilisation of cash and cash equivalents during 2008. Since Digital Subscriptions Inc. has sufficient cash on hand, afte meeting its liabilities, and clearing off long term debts, owing to a proper collection policy followed for accounts receivables, control on inventory and accounts payable, as well as efficient fixed assets management, all these points collectively mean a healthy company functioning, and hence investment in Digital should be done to a relatively economical level.
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