27. Prepare a statement of cash flows for the Crosby Corporation. Follow the general procedures indicated in Table 2-10 on page 38.

Statement of cash flows (L04)

Current Assets Liabilities

Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 Accounts payable . . . . . . . . $ 20,000

Accounts receivable . . . . . . . . . . . . . 22,500 Notes payable . . . . . . . . . . . 30,000

Inventory . . . . . . . . . . . . . . . . . . . . . . 37,500 Bonds payable . . . . . . . . . . . 75,000

Prepaid expenses . . . . . . . . . . . . . . . 18,000

Fixed Assets Stockholders' Equity

Plant and equipment (gross) . . . . . . . $375,000 Common stock . . . . . . . . . . $112,500

Paid-in capital . . . . . . . . . . . 37,500

Less: Accumulated depreciation . . . . 75,000 Retained earnings . . . . . . . . 118,000

Net plant and assets . . . . . . . . . . . . . 300,000 Total liabilities and

Total assets . . . . . . . . . . . . . . . . . . . . $393,000 stockholders' equity . . . . . $393,000

continued

 

CROSBY CORPORATION

Income Statement

For the Year Ended December 31, 2008

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,200,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300,000

Gross profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000

Selling and administrative expense . . . . . . . . . . . . . . . . . . . . 420,000

Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000

Earnings before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000

Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000

Statement of Retained Earnings

For the Year Ended December 31, 2008

Retained earnings, balance, January 1, 2008 . . . . . . . . . . . . . . . . . . . $500,000

Add: Earnings available to common stockholders, 2008 . . . . . . . . . . 150,000

Deduct: Cash dividends declared and paid in 2008 . . . . . . . . . . . . . 50,000

Retained earnings, balance, December 31, 2008 . . . . . . . . . . . . . . . . $600,000

CROSBY CORPORATION

Income Statement

For the Year Ended December 31, 2008

Earnings after taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000

Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000

Earnings available to common stockholders . . . . . . . . . . . . . $ 150,000

Common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 120,000

Earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250,000 $ 440,000

Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 400,000

Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 50,000

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 720,000 890,000

 

Long-term liabilities:

Bonds payable, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 120,000

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 790,000 1,010,000

 

Comparative Balance Sheets For 2007 and 2008

Year-End 2007

Year-End 2008

Assets

Current assets:

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,000 $ 100,000

Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 350,000

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000 430,000

Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 30,000

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830,000 910,000

Investments (long-term securities) . . . . . . . . . . . . . . . . . . . 80,000 70,000

Plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 2,400,000

Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . 1,000,000 1,150,000

Net plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,250,000

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,910,000 $2,230,000

Stockholders' equity:

Preferred stock, $100 per value . . . . . . . . . . . . . . . . . . . . . . 90,000 90,000

Common stock, $1 par value . . . . . . . . . . . . . . . . . . . . . . . . 120,000 120,000

Capital paid in excess of par . . . . . . . . . . . . . . . . . . . . . . . . 410,000 410,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 600,000

Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . 1,120,000 1,220,000

Total liabilities and stockholders' equity . . . . . . . . . . . . . . . $1,910,000 $2,230,000

(The following questions apply to the Crosby Corporation, as presented in problem 27.)

28. Describe the general relationship between net income and net cash flows from operating activities for the firm.

29. Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss.

Block-Hirt-Danielsen: Foundations of Financial Management, 13th Edition II. Financial Analysis and Planning