Business, 04.07.2020 16:01 saharalover11

CA5-5 WRITING (Cash Flow Analysis) The partner in charge of the Kappeler Corporation audit comes by your desk and leaves a letter he has started to the CEO and a copy of the cash flow statement for the year ended December 31, 2017. Because he must leave on an emergency, he asks you to finish the letter by explaining: (1) the disparity between net income and cash flow, (2) the importance of operating cash flow, (3) the renewable source(s) of cash flow, and (4) possible suggestions to improve the cash position. KAPPELER CORPORATION
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from operating activities
Net income
$ 100,000â

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
$â10,000â

Amortization expense
1,000â

Loss on sale of fixed assets
5,000â

Increase in accounts receivable (net)
(40,000)

Increase in inventory
(35,000)

Decrease in accounts payable
â(41,000)

â(100,000)

Net cash provided by operating activities â0â
Cash flows from investing activities
Sale of plant assets
25,000â

Purchase of equipment
(100,000)

Purchase of land
â(200,000)

Net cash used by investing activities
(275,000)

Cash flows from financing activities
Payment of dividends
(10,000)

Redemption of bonds
â(100,000)

Net cash used by financing activities
â(110,000)

Net decrease in cash
(385,000)

Cash balance, January 1, 2017
ââ400,000â

Cash balance, December 31, 2017
$ââ15,000â
ââ â ââââââ

Date

President Kappeler, CEO
Kappeler Corporation
125 Wall Street
Middleton, Kansas 67458

Dear Mr. Kappeler:

I have good news and bad news about the financial statements for the year ended December 31, 2017. The good news is that net income of $100,000 is close to what we predicted in the strategic plan last year, indicating strong performance this year. The bad news is that the cash balance is seriously low. Enclosed is the Statement of Cash Flows, which best illustrates how both of these situations occurred simultaneously â¦

Instructions

Complete the letter to the CEO, including the four components requested by your boss.

Answers: 1

Show answers

Answers

Answer from: georgesk872

Explanation statement of cash flow for the year ended December 31.2017

Cash flow from operating activities

Net income 100,000

Add back depreciation 10,000

Add back amortization 1,000

Add back loss on asset sales 5,000

Increase in account receivable(40,000)

Increase in inventory (35,000)

Decrease in accounts payable (41,000) (100,000)

Net cash from operating activities 0

Cash flow from investing activities

Sales of land 25,000

Purchase of equipment (100,000)

Purchase of Land (200,000)

Net cash from investing activities (275,000)

Cash from financing activities

Payment of dividends (10,000)

Redemption of bonds (100,000)

Bet cash from financing activities (110,000)

Net decrease in Cash ( 385,000)

Cash balance in January 1, 2017 400,000

Cash balance in December 31 , 2017 15,000

Workings

The disparity between the net income and the cash floe are as a result loss of cash to operating activities as a result of cash tied down to increase in receivable and inventory and also to an increase in payable leading to an overall cash generated by operating activities of 0

Moreover , a larger portion (300,000) of the opening cash balance(400,000) for the year was used in acquiring land and equipment and also 100,000 used in the redemption of bond. , even though this reduced the interest expense and improve equity , yet it was a big blow to the cash flow.

The importance of cash flow is that it helps to analyse and monitor cash movement and cash available for the purpose of business activities towards liquidity and long term solvency.

Renewable sources of cash flow are generated from the company's operating activities as the cash used for the financing and operating activities are generated from this medium.

Suggestion to improve cash flow for Kappler are

Reduce the level of inventory heldNegotiate with the account payable for a longer trade payable payment periodReduce the trade receivable collection periodPayment of dividends and redemption of bonds van be suspended till alter date when adequate cash is availableit can also negotiate for external sources of financing

Answer from: Quest

the answer is b. the events might happen and are based on crimes.

Answer from: Quest

Answerwork group;

Another question on Business

Business, 22.06.2019 02:00

Alandowner and his neighbor purchased adjoining undeveloped lots. after both built homes on their respective lots, the landowner suggested to the neighbor that a common driveway be built where the two lots joined. the neighbor agreed. the landowner and the neighbor split the cost of constructing the driveway and entered into a written agreement to equally share the costs of its upkeep and maintenance. the agreement was recorded in the county recorder's office. two years later, the neighbor built a new driveway located entirely on his lot. the common driveway, which the landowner continued to use but which the neighbor no longer used, began to deteriorate. the landowner asked the neighbor for money to maintain the common driveway, but the neighbor refused to contribute. three years later, the neighbor conveyed his lot to a friend. the friend entered into possession and used only the driveway built by the neighbor. by this time, the common driveway had deteriorated badly and contained numerous potholes. the landowner asked the friend to pay half of what it would take to repair the common driveway. the friend refused. the landowner repaired the driveway and sued the friend for 50% of the cost of repairs. will the landowner prevail?

Answers: 2

Answer

Business, 22.06.2019 11:40

Fanning company is considering the addition of a new product to its cosmetics line. the company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. relevant information and budgeted annual income statements for each of the products follow. skin cream bath oil color gel budgeted sales in units (a) 110,000 190,000 70,000 expected sales price (b) $8 $4 $11 variable costs per unit (c) $2 $2 $7 income statements sales revenue (a × b) $880,000 $760,000 $770,000 variable costs (a × c) (220,000) (380,000) (490,000) contribution margin 660,000 380,000 280,000 fixed costs (432,000) (240,000) (76,000) net income $228,000 $140,000 $204,000 required: (a) determine the margin of safety as a percentage for each product. (b) prepare revised income statements for each product, assuming a 20 percent increase in the budgeted sales volume. (c) for each product, determine the percentage change in net income that results from the 20 percent increase in sales. (d) assuming that management is pessimistic and risk averse, which product should the company add to its cosmetics line? (e) assuming that management is optimistic and risk aggressive, which product should the company add to its cosmetics line?

Answers: 1

Answer

Business, 22.06.2019 21:00

You have $5,300 to deposit. regency bank offers 6 percent per year compounded monthly (.5 percent per month), while king bank offers 6 percent but will only compounded annually. how much will your investment be worth in 17 years at each bank

Answers: 3

Answer

Business, 23.06.2019 00:30

Dr. hughes enjoys offering to employees who perform over and above the call of duty

Answers: 1

Answer

You know the right answer?

CA5-5 WRITING (Cash Flow Analysis) The partner in charge of the Kappeler Corporation audit comes by...

Questions