Tuesday 12 June 2012

Given the financial information for the A.E. Neuman Corporation,

Given the financial information for the A.E. Neuman Corporation,

a) Prepare a Statement of Cash Flows for the year ended December 31, 2002.
b) What is the dividend payout ratio for 2003?
c) If we increased the dividend payout ratio to 100%, what would happen to retained earnings?





Difficulty: Medium to Hard

Answer:

a) Cash Flows from Operating Activities:
Net Income (earnings after taxes) $400,000
Adjustments:
Add back depreciation 150,000
Decrease in marketable securities 15,000
Decrease in accounts receivable 20,000
Increase in inventories (45,000)
Decrease in accounts payable (25,000)
Decrease in notes payable (55,000)
Decrease in accrued expenses (25,000)
Increase in incomes taxes payable 5,000
Total Adjustments 40,000
Net Cash Flows from Operating Activities $440,000
Cash Flows from Investing Activities
Decrease in Investments 15,000
Increase in Plant & Equipment (250,000)
Net Cash Flows from Investing Activities (235,000)
Cash Flows from Financing Activities
Increase in Bonds Payable 100,000
Dividends Paid (300,000)
Net Cash Flows from Financing Activities (200,000)
Net Increase (Decrease) in Cash Flows 5,000
b)
c) The 2003 value for retained earnings would decrease by $100,000 to $400,000. In addition, Assets would have to decrease by $100,000 or other liabilities would have to increase by the same amount.

No comments:

Post a Comment

Note: only a member of this blog may post a comment.