Statement of Cash Flows (Indirect Method) The Wolff Company\'s income statement

Question

Statement of Cash Flows (Indirect Method) The Wolff Company's income statement and comparative balance sheets at December 31 of 2016 and 2015 are shown below WOLFF COMPANY Income Statement For the Year Ended December 31, 2016 Sales Revenue Cost of Goods Sold $430,000 Wages Expense Insurance Expense 12,000 Depreciation Expense 13,000 Interest Expense income Tax Expense 29,000 582,000 Net Income $645,000 86,000 12,000 $63,000 WOLFF COMPANY Balance Sheets Dec. 31, 2016 Dec. 31, 2015 Assets Cash Accounts Receivable inventory $52,000 41,000 90,000 $8,000 32,000 60,000

Explanation / Answer

Answer a. Cash Balance - Dec 31, 2016     52,000.00 Cash Balance - Dec 31, 2015        8,000.00 Increase in Cash     44,000.00 Answer b. WOLFF COMPANY Statement of Cash Flows (Indirect Method) For the Year ended Dec 31, 2016 Cash Flow from opearating activities: Net Income     63,000.00 Add/(Less) non cash effects on operating activities Depreciation expense     13,000.00 Inrease in Accounts Receivables     (9,000.00) Increase in Inventory (30,000.00) Decrease in Prepaid Insurance        2,000.00 Decrease in Accounts Payable     (3,000.00) Increase in Wages Payable        3,000.00 Decrease in Income Tax Payable     (1,000.00) (25,000.00) Net Cash provided by operating activities     38,000.00 Cash flow from Investing Activities Purchase of Plant Assets (24,000.00) Net Cash used by Investing activities (24,000.00) Cash Flow from Financing Activities Issue of Bonds Payable     66,000.00 Cash Dividends Paid (36,000.00) Net Cash provided by Financing activities     30,000.00 Net Increase / (Decrease) in Cash     44,000.00 Cash balance at the Dec 31, 2015        8,000.00 Cash balance at the end - Dec 31, 2016     52,000.00 Answer c. Free Cash Flow = Operating Cash Flow - Capital Expenditures Free Cash Flow = $38,000 - $24,000 Free Cash Flow = $14,000 Answer d. Operating Cash Flow to Current Liabilities Ratio = Operating Cash Flow / Current Laibilities Operating Cash Flow to Current Liabilities Ratio = $38,000 / $22,000 Operating Cash Flow to Current Liabilities Ratio = 1.73 Answer e. Operating Cash Flow to Capital Expenditure Ratio = Operating Cash Flow / Capital expenditure Operating Cash Flow to Capital Expenditure Ratio = $38,000 / $24,000 Operating Cash Flow to Capital Expenditure Ratio = 1.58

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