It’s November 20, 2018. You are the controller of Lashkey Co., a $400 million (sales) manufacturing...

It’s November 20, 2018. You are the controller of Lashkey Co., a $400 million (sales) manufacturing company. As you prepare forecasts for the year ending December 31, 2018, you discover that cash flow from operating activities is substantially lower than was expected. You ask your staff to suggest steps that could be taken before the end of the year to boost cash flow from operating activities. Following are your staff’s recommendations. For each one, indicate if it would (answer “yes”) or would not (answer “no”) increase cash flow from operating activities. If your answer is “no,” explain why not.

Offer customers a 1% discount on accounts receivable paid before December 27, 2018.

Yes (will potentially increase operating cash flow from operating activities)

No (will not.) Explain why.

Extend the depreciable lives of all equipment by 5 years. The company has a significant investment in new machinery, currently depreciated over 10 years.

Yes (will potentially increase operating cash flow from operating activities)

No (will not.) Explain why.

Instead of declaring and paying a dividend in December, declare and pay a dividend in January.

Yes (will potentially increase operating cash flow from operating activities)

No (will not.) Explain why.

Starting December 1^st, tell vendors that you are installing a new accounting system and won’t be able to pay invoices until January.

Yes (will potentially increase operating cash flow from operating activities)

No (will not.) Explain why.

Solutions

Expert Solution

Offer customers a 1% discount on accounts receivable paid before December 27, 2018.

Yes

It will motivate the customer to pay early to avail the discount, hence more cash for the company.

Cash collected from customers is part of Operating Activities

Extend the depreciable lives of all equipment by 5 years. The company has a significant investment in new machinery, currently depreciated over 10 years.

Depreciation is a non cash item, it wont effect the cash flow.

Instead of declaring and paying a dividend in December, declare and pay a dividend in January.

Payment of Dividend is part of Financing Activitiies and not Operating Activities.

Starting December 1st, tell vendors that you are installing a new accounting system and won’t be able to pay invoices until January.

Yes

Cash paid to vendors is part of Operating Activities. If no payment is made to vendors, that will be a addition to the cash flow

ekkarill92 answered 1 year ago

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