(Learning Objectives 3, 4, 5, 7: Preparing and analyzing the statement of cash flows—indirect...

Question

(Learning Objectives 3, 4, 5, 7: Preparing and analyzing the statement of cash flows—indirect method) The Income Statement and additional data of Newbury Travel Products, Inc., follow:

Additional data:

a. Acquisition of PPE was $222,000. Of this amount, $170,000 was paid in cash and $52,000 by signing a note payable.

b. Proceeds from sale of land totaled $28,000.

c. Proceeds from issuance of shares totaled $90,000.

d. Payment of a long-term note payable was $18,000.

e. Payment of dividends was $13,000.

f. From the Balance Sheets:

Requirements

1. Prepare Newbury’s statement of cash flows for the year ended December 31, 20X6, using the indirect method.

2. Evaluate Newbury’s cash flows for the year, including its free cash flow and cash realization ratio. In your evaluation, review all three categories of cash flows and give the reason for your evaluation.

phpqpzzrs-1-t5kifcar-hx2rbnxj.png phpqpzzrs-n1wdntjz-n2o3ic0y.png

Uroosa · Accepted Answer

Step 1 – Preparation of Cash Flow Statement
	Newbury Travel Products, Inc.
	Cash Flow Statement for the year ended 31st December 2006
	
	
	
	Cash Flow from Operating Activities
	 
	 
	(indirect method)
	 
	 
	 
	 
	 
	Net Income
	 $       68,900 
	 
	Adjustments
	 
	 
	Dividend revenue
	 $        (8,000)
	 
	Depreciation expense
	 $       26,000 
	 
	Interest Expense
	 $         2,600 
	 
	Changes in working capital
	 
	 
	Decrease in Accounts Receivable
	 $       17,000 
	 
	Decrease in Inventory
	 $       61,000 
	 
	Increase in Prepaid Expenses
	 $           (700)
	 
	Increase in Accounts Payable
	 $       11,000 
	 
	Decrease in Accrued liabilities
	 $      (81,000)
	 
	Net cash flow from Operating Activities
	 
	 $       96,800 
	 
	 
	 
	Cash Flow from Investing Activities
	 
	 
	Dividend revenue
	 $         8,000 
	 
	Cash paid for acquisition of PPE
	 $    (170,000)
	 
	Proceeds from sale of land
	 $       28,000 
	 
	Net cash flow from Investing Activities
	 
	 $    (134,000)
	 
	 
	 
	Cash Flow from Financing Activities
	 
	 
	Interest Expense paid
	 $        (2,600)
	 
	Proceeds from issuance of shares
	 $       90,000 
	 
	Payment of long term note
	 $      (18,000)
	 
	Payment of dividends
	 $      (13,000)
	 
	Net cash flow from Financing Activities
	 
	 $       56,400 
	 
	 
	 
	Cash at the beginning of the year - at 31st Dec 2005
	 
	 $       10,800 
	Changes in cash flow during the period
	 
	 $       19,200 
	Cash at the end of the year - at 31st Dec 2006
	 
	 $       30,

(Learning Objectives 3, 4, 5, 7: Preparing and analyzing the statement of cash flows—indirect method) The Income Statement and additional data of Newbury Travel Products, Inc., follow: Additional...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers