Question

Use the information below to prepare a statement of cash flows for Windswept Woodworks, Inc. for year 2. Net income is given. (Use a minus sign to indicate negative values. Round each entry to 2 decimal places.)

Windswept Woodworks, Inc.
Input Data
(millions of dollars)
		Year 2			Year 1
Accounts payable		424			374
Accounts receivable		1,268			820
Accumulated depreciation		6,734			6,622
Cash & equivalents		212			118
Common stock		1,172			1,110
Cost of goods sold		1,500			n.a.
Depreciation expense		?			n.a.
Common stock dividends paid		?			n.a.
Interest expense		140			n.a.
Inventory		1,002			1,016
Addition to retained earnings		602			n.a.
Long-term debt		800			726
Notes payable		230			380
Gross plant & equipment		10,260			10,000
Retained earnings		3,050			2,466
Sales		3,018			n.a.
Other current liabilities		116			96
Tax rate		34	%		n.a.
Market price per share – year end	$	19.80		$	17.50
Number of shares outstanding		500.00	million		500.00	million

Answer 1

Cash flow statement  for Windswept Woodworks, Inc

Note1:

Sales		3018.00
Cost of goods sold		1500.00
Depreciation expense		112.00
EBIT		1406.00
Interest expense		140.00
Taxable income		1266.00
tax @34%		430.44
Net income		835.56
Retained earnings		602.00
Dividend paid		233.56

Cash Flow statement

Cash flow from operations
Net Income		1,406
Additions to cash
Depreciation (6734-6622)	112
Increase in Accounts payable(374 to 424)	50
Decrease in inventory (1016 to 1002)	14
Increase in other current liabilities(96 to 116)	20	196
Subtractions from cash
Increase in Accounts receivable(820 to1268)	448
Decrease in notes payable(380 to 230)	150	-598
Income tax paid				-430.44
Net cash from operations				573.6
Cash flow from Investing activities
Purchase of plant & equipment				-260
Cash flow from Financing activities
Interest paid					-140
Issuance of common stock i.e, equity		62
Increase in long term debt			74
Dividend paid					-233.56
Reduction in retained earnings			18	-219.6
Net cash flow						94
Add:opening cash balance				118
Closing cash balance					212

Note:

Opening retained earnings = 2466

Addittion to retained earnings = 602

Total =3068

But closing balance is = 3050

Difference = 18

That difference is may be due to business loss which has been set off through retained earnings

We can think as dividend paid also, but after paying dividend, 602 has been added to retained earnings

Question mistake may also happen.