Current assets Cash Receivables, net Inventories Total current assets Plant assets (net of accumulated depreciation) Total assets 20X2 20X1 $ 12 65 100 $177 December 31 275 $ 25 30 50 $105 100 Change $ (13) 35 50 $ 72 175 $452 $205 $ 247 Current liabilities (detailed) Long-term debt. Stockholders' equity Total liabilities and stockholders' equity Net income for 20X2 was $60 million. Net cash inflow from operating activities was $72 million. Cash dividends paid were $10 million. Depreciation was $20 million. Fixed assets were purchased for $195 million, $120 million of which was financed via the issuance of long-term debt, the balance outright : cash. Sean O'Toole, Jr., the president and majority stockholder of O'Toole Company. was a superb operating executive. He was imaginative and aggressive in marketing and ingenious and creative in production. But he had little patience with financial matters. After examining the most recent balance sheet and income statement, he muttered. "We've enjoyed 10 years of steady growth; 20X2 was our most profitable ever. Despite such profitability, we're in the worst cash posi- tion in our history. Just look at those current liabilities in relation to our available cash! This whole picture of the more you make, the poorer you get, just does not make sense. These statements must be cockeyed." 1. Prepare a statement of cash flows using the indirect method, which includes a schedule reconcil- ing net income to net cash provided by operating activities in the body of the statement. 2. Using the statement of cash flows and other information, write a short memorandum to Mr. O'Toole, explaining why there is such a squeeze on cash. December 31 20X2 20X1 Change $101 $24 $ 77 120 231 $452 181 $205 - 120 50 $247
Current assets Cash Receivables, net Inventories Total current assets Plant assets (net of accumulated depreciation) Total assets 20X2 20X1 $ 12 65 100 $177 December 31 275 $ 25 30 50 $105 100 Change $ (13) 35 50 $ 72 175 $452 $205 $ 247 Current liabilities (detailed) Long-term debt. Stockholders' equity Total liabilities and stockholders' equity Net income for 20X2 was $60 million. Net cash inflow from operating activities was $72 million. Cash dividends paid were $10 million. Depreciation was $20 million. Fixed assets were purchased for $195 million, $120 million of which was financed via the issuance of long-term debt, the balance outright : cash. Sean O'Toole, Jr., the president and majority stockholder of O'Toole Company. was a superb operating executive. He was imaginative and aggressive in marketing and ingenious and creative in production. But he had little patience with financial matters. After examining the most recent balance sheet and income statement, he muttered. "We've enjoyed 10 years of steady growth; 20X2 was our most profitable ever. Despite such profitability, we're in the worst cash posi- tion in our history. Just look at those current liabilities in relation to our available cash! This whole picture of the more you make, the poorer you get, just does not make sense. These statements must be cockeyed." 1. Prepare a statement of cash flows using the indirect method, which includes a schedule reconcil- ing net income to net cash provided by operating activities in the body of the statement. 2. Using the statement of cash flows and other information, write a short memorandum to Mr. O'Toole, explaining why there is such a squeeze on cash. December 31 20X2 20X1 Change $101 $24 $ 77 120 231 $452 181 $205 - 120 50 $247
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
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Please help me
Transcribed Image Text:Current assets
Cash
Receivables, net
Inventories
Total current assets
Plant assets
(net of accumulated depreciation)
Total assets
20X2 20X1
$ 12
65
100
$177
December 31
275
$ 25
30
50
$105
100
Change
$(13)
35
50
$ 72
175
$452 $205 $ 247
Current liabilities (detailed)
Long-term debt
Stockholders' equity
Total liabilities and
stockholders' equity
Net income for 20X2 was $60 million. Net cash inflow from operating activities was $72 million.
Cash dividends paid were $10 million. Depreciation was $20 million. Fixed assets were purchased
for $195 million, $120 million of which was financed via the issuance of long-term debt, the balance
outright for cash. Sean O'Toole, Jr., the president and majority stockholder of O'Toole Company.
was a superb operating executive. He was imaginative and aggressive in marketing and ingenious
and creative in production. But he had little patience with financial matters. After examining the
most recent balance sheet and income statement, he muttered. "We've enjoyed 10 years of steady
growth; 20X2 was our most profitable ever. Despite such profitability, we're in the worst cash posi-
tion in our history. Just look at those current liabilities in relation to our available cash! This whole
picture of the more you make, the poorer you get, just does not make sense. These statements must
be cockeyed."
1. Prepare a statement of cash flows using the indirect method, which includes a schedule reconcil-
ing net income to net cash provided by operating activities in the body of the statement.
2. Using the statement of cash flows and other information, write a short memorandum to
Mr. O'Toole, explaining why there is such a squeeze on cash.
December 31
20X2 20X1 Change
$101
$ 24
$.77
120
231
$452
1
181
$205
120
50
$247
16
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