Question

Ritter Corporation’s accountants prepared the following financial statements for year-end 2019: (Do not round intermediate calculations.) RITTER CORPORATION Income Statement 2019 Revenue $ 760 Expenses 570 Depreciation 91 Net income $ 99 Dividends $ 79 RITTER CORPORATION Balance Sheets December 31 2018 2019 Assets Cash $ 56 $ 67 Other current assets 166 172 Net fixed assets 371 391 Total assets $ 593 $ 630 Liabilities and Equity Accounts payable $ 116 $ 127 Long-term debt 141 147 Stockholders’ equity 336 356 Total liabilities and equity $ 593 $ 630 a. What is the change in cash during 2019? b. Determine the change in net working capital in 2019. c. Determine the cash flow generated by the firm’s assets during 2019.

Answer 1

Hi

Cash in 2018 = $56

Cash in 2019 = $67

Change in cash during 2019 = 67 - 56 = $11

b.

Calculate net working capital for 2018

Net working capital for 2018 = Cash + Other current assets - Accounts payable

= $56 + $166 - $116

= $106

Calculate net working capital for 2019.

Net working capital for 2019 = Cash + Other current assets - Accounts payable

= $67 + $172 -$127

= $112

Change in net working capital in 2019

= Net working capital for 2019 - Net working capital for 2018

= $112 - $106

= $6

c.

Cash flow generated by firm's assets

= Operating cash flow - Capital spending - Additions to net working capital

Here,

Operating cash flow = Net income + Depreciation = $99 + $91 = $190

Capital spending = Net fixed assets for 2019 - Net fixed assets for 2018 + Depreciation

= $391 - $371 + $91 = $111

And,

Addition to net working capital = $6

Therefore,

Cash flow generated by firm's assets = $190 - $111 - $6 = $73

Thanks