Interpreting the Effects of Sales Declines and Changes in Receivables on Cash Flow from Operations E14- 24 Stride Rite Corporation manufactures and markets shoes under the brand names Stride Rite, Keds, and Sperry Top-Sider. Three recent years produced a combination of declining sales revenue and net income culminating in a net loss of $8,430,000. Each year, however, Stride Rite was able to report positive cash flows from operations. Contributing to that positive cash flow was the change in accounts receivable. The current and prior year balance sheets reported the following: (dollars in thousands) Current Year Previous Year Accounts and notes receivable, less allowances $48,066 $63,403 Required: 1. On the current year's cash flow statement (indirect method), how would the change in accounts receivable affect cash flow from operations? Explain why it would have this effect. 2. Explain how declining sales revenue often leads to (a) declining accounts receivable and (b) cash collections from customers being higher than sales revenue.
Interpreting the Effects of Sales Declines and Changes in Receivables on Cash Flow from Operations E14- 24 Stride Rite Corporation manufactures and markets shoes under the brand names Stride Rite, Keds, and Sperry Top-Sider. Three recent years produced a combination of declining sales revenue and net income culminating in a net loss of $8,430,000. Each year, however, Stride Rite was able to report positive cash flows from operations. Contributing to that positive cash flow was the change in accounts receivable. The current and prior year balance sheets reported the following: (dollars in thousands) Current Year Previous Year Accounts and notes receivable, less allowances $48,066 $63,403 Required: 1. On the current year's cash flow statement (indirect method), how would the change in accounts receivable affect cash flow from operations? Explain why it would have this effect. 2. Explain how declining sales revenue often leads to (a) declining accounts receivable and (b) cash collections from customers being higher than sales revenue.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Interpreting the Effects of Sales Declines and Changes in Receivables on Cash Flow
from Operations
E14-
24
Stride Rite Corporation manufactures and markets shoes under the brand names Stride Rite,
Keds, and Sperry Top-Sider. Three recent years produced a combination of declining sales
revenue and net income culminating in a net loss of $8,430,000. Each year, however, Stride
Rite was able to report positive cash flows from operations. Contributing to that positive cash
flow was the change in accounts receivable. The current and prior year balance sheets
reported the following:
(dollars in thousands)
Current Year
Previous Year
Accounts and notes receivable, less allowances
$48,066
$63,403
Required:
1. On the current year's cash flow statement (indirect method), how would the change
in accounts receivable affect cash flow from operations? Explain why it would have
this effect.
2. Explain how declining sales revenue often leads to (a) declining accounts receivable
and (b) cash collections from customers being higher than sales revenue.
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