Question

Following are comparative balance sheets for Millco, Inc., at January 31 and February 28, 2014:

   

MILLCO, INC. Balance Sheets February 28 and January 31, 2014
Assets	February 28			January 31
Cash	$	54,600		$	48,100
Accounts receivable		83,200			68,900
Merchandise inventory		105,300			122,200
Total current assets	$	243,100		$	239,200
Plant and equipment:
Production equipment		215,800			197,600
Less: Accumulated depreciation		(31,200	)		(27,300)
Total assets	$	427,700		$	409,500
Liabilities
Accounts payable	$	48,100		$	53,300
Short-term debt		57,200			57,200
Other accrued liabilities		27,300			31,200
Total current liabilities	$	132,600		$	141,700
Long-term debt		42,900			59,800
Total liabilities	$	175,500		$	201,500
Stockholders' Equity
Common stock, no par value, 52,000 shares authorized,   39,000 and 36,400 shares issued, respectively	$	135,200		$	124,800
Retained earnings:
Beginning balance	$	83,200		$	55,900
Net income for month		46,800			37,700
Dividends		(13,000	)		(10,400)
Ending balance	$	117,000		$	83,200
Stockholders’ Equity	$	252,200		$	208,000
Total liabilities and owners' equity	$	427,700		$	409,500

Required:

a.

Calculate the change that occurred in cash during the month. You may assume that the change in each balance sheet amount is due to a single event (for example, the change in the amount of production equipment is not the result of both a purchase and sale of equipment). (Hints: What is the purpose of the statement of cash flows? How is this purpose accomplished?) Because the retained earnings section of the balance sheet is, in and of itself, an analysis of the change in the retained earnings account for the month, the row for net income and dividends should be entered as the February amount and not the change. Use the space to the right of the January 31 data to enter the difference between the February 28 and January 31 amounts of each balance sheet item.

     

b.	Prepare a statement of cash flows that explains above changes? (Amounts to be deducted should be indicated by minus sign. )

     

Answer 1

Answer

Assets	28-Feb		31-Jan	Change
Cash	54,600		48,100	6,500
Accounts receivable	83,200		68,900	14,300
Merchandise inventory	105,300		122,200	(16,900)
Total current assets	243,100		239,200
Plant and equipment:
Production equipment	215,800		197,600	18,200
Less: Accumulated depreciation	(31,200)		(27,300)	(3,900)
Total assets	427,700		409,500
Liabilities
Accounts payable	48,100		53,300	(5,200)
Short-term debt	57,200		57,200	-
Other accrued liabilities	27,300		31,200	(3,900)
Total current liabilities	132,600		141,700
Long-term debt	42,900		59,800	(16,900)
Total liabilities	175,500		201,500
Stockholders' Equity
Common stock, no par value, 52,000 shares authorized,   39,000 and 36,400 shares issued, respectively	135,200		124,800	10,400
Retained earnings:
Beginning balance	83,200		55,900
Net income for month	46,800		37,700	46,800
Dividends	(13,000)		(10,400)	(13,000)
Ending balance	117,000		83,200
Stockholders’ Equity	252,200		208,000
Total liabilities and owners' equity	427,700		409,500

Change in Net Income will be of Feb 28 Balance, as Net Income of Jan 31 is the opening balance of Feb 28 and Feb 28 balance is the Income earned in Feb, so Difference is Whole of Feb 28 Balance.

Same goes with Dividend, Jan 31 dividend is paid in Jan and Feb Dividend is of Feb Month.

Cash Flow Statement
	Detail	Net
Cash Flow from Operating Activities
Net Income before taxes		46,800
Add: Non cash and Non operating Expenses
Depreciation	3,900
Working Capital Changes
Increase in Accounts Receivable	(14,300)
Decrease in Inventory	16,900
Decrease in Accounts Payable	(5,200)
Decrease in Other Accured Liabilities	(3,900)
Cash Flow from Operating Activities (A)		44,200
Cash Flow from Investing Activities
Purchases of Equipment	(18,200)
Cash Used in Investing Activities (B)		(18,200)
Cash Flow from Financing Activities
Dividend Paid	(13,000)
Payment of Long term debt	(16,900)
Issue of Common Shares	10,400
Cash used in Financing Activities ( C)		(19,500)
Decrease in Cash (A+B+C)		6,500
Opening Cash		48,100
Closing Cash		54,600

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