Chapter 1 (Introduction to Corporate Financel; Chapter 2 (Financial Statements)
ID: 2816585 • Letter: C
Question
Chapter 1 (Introduction to Corporate Financel; Chapter 2 (Financial Statements) For questions #6-18, refer to the following financial information for Gannon Insurance. ALL CALCULATIONS MUST BE SHOWN TO EARN POSITIVE RATING. PLEASE SHOW ALL WORKING CLEARLY. THANK YOU! 2016 2017 BALANCE SHEETS: Assets: 120,000 520,000 Cash Accounts Receivable Inventory Eixed Assets, net Total Assets 160,000 620,000 290,000 510,000 1,580,000 410,000 1,355,000 Liabilities and Equity Accounts Payable Long-term Debt Common Stock Retained Earnings Total Liabilities and Equity 350,000 500,000 50,000 435,000 1,355,000 375,000 625,000 75,000 505,000 1,580,000 INCOME STATEMENT: Revenue Cost of Goods Sold General and Administrative Depreciation Expense Earnings Before Interest and Taxes Interest Expense Pretax Net Income Income Taxes Net Income 3,500,000 2,275,000 515,000 120,000 590,000 40,000 550,000 167,000 383,000 18. What was Gannon's Cash Flow to Stockholders in 2017?Explanation / Answer
Cash flow to shareholder is the amount that company pays to it’s shareholders. Basically, that is paid as dividend and out of its net profit or reserves.
Solution:
CASH FLOW STATEMENT
Particular
2016
2017
Change in Amount
Total Amount
Cash flow from operating activities
Net Profit before tax and non-cash Item
550000
Add: Depreciation
120000
Increase in Account Receivable
520000
620000
-100000
Decrease in Inventory
305000
290000
15000
Increase in Account Payable
350000
375000
25000
Income tax paid
-167000
-107000
-214000
A. Net cash Flow from Operating Activities
336000
B. Cash flow from investing activities
Increase in Fixed assets
410000
510000
-100000
Increase in Long term Debt
500000
625000
125000
B.Net Income from Investing Activities
25000
25000
C. Cash Flow from Financial Activities
Increase in common stock
50000
75000
25000
C. Net Cash Flow from Financing Activities
25000
25000
Net Increase or decrease in cash (A +B +C)
936000
Opening cash flow
120000
Closing cash balance (Given)
160000
In the given data the net cash flow of the year is Rs. 936000. But the increase in cash value is only $ 40000 (16000 – 120000). So, out of that
Particulars
2016
2017
Change
Cash Balance
120000
160000
40000
Retain Earning
455000
505000
40000
Increase in retain earning is $40000. So, rest amount is distributed to shareholder as dividend. i.e. $856000.
CASH FLOW STATEMENT
Particular
2016
2017
Change in Amount
Total Amount
Cash flow from operating activities
Net Profit before tax and non-cash Item
550000
Add: Depreciation
120000
Increase in Account Receivable
520000
620000
-100000
Decrease in Inventory
305000
290000
15000
Increase in Account Payable
350000
375000
25000
Income tax paid
-167000
-107000
-214000
A. Net cash Flow from Operating Activities
336000
B. Cash flow from investing activities
Increase in Fixed assets
410000
510000
-100000
Increase in Long term Debt
500000
625000
125000
B.Net Income from Investing Activities
25000
25000
C. Cash Flow from Financial Activities
Increase in common stock
50000
75000
25000
C. Net Cash Flow from Financing Activities
25000
25000
Net Increase or decrease in cash (A +B +C)
936000
Opening cash flow
120000
Closing cash balance (Given)
160000
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