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Assignment EMB660

The financial statement summarizes Rainbow Company's statement of cash flows for the year ended December 31, 2020. It shows that the company had $177,000 in net cash from operating activities and $129,000 in net cash used in investing activities. The company also had $11,000 in net cash used in financing activities. As a result, the company's cash and cash equivalents increased by $37,000 during the year.

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Ashekin Mahadi
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104 views11 pages

Assignment EMB660

The financial statement summarizes Rainbow Company's statement of cash flows for the year ended December 31, 2020. It shows that the company had $177,000 in net cash from operating activities and $129,000 in net cash used in investing activities. The company also had $11,000 in net cash used in financing activities. As a result, the company's cash and cash equivalents increased by $37,000 during the year.

Uploaded by

Ashekin Mahadi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Rainbow Company

Statement of Finanacial Cash Flows (Indirect M


For Year Ended December 31, 2020

Step-1: Calculate net investment in net working cap


2020
Current Asset:
Cash $62,000.00
Account Receivable $41,000.00
Inventory $97,000.00
Prepaid Expense $11,000.00
Total Current Asset $211,000.00
Current Liabilities:
Account Payable $23,000.00
Acruied expemnse $21,000.00
Total Current liabilities $44,000.00
Workining Capital-2020 $167,000.00
NINWC= Working capital-2020-Working capital 2019

Step-2: Calculate OCF:


EBIT calculation:
Sales
CoGS $490,000.00
Wages and other op expensa$140,000.00
Depriciation $41,000.00
Amortization $8,000.00
EBIT

OCF = EBIT + Depreciation + Amortization – Current Taxes


"=196,000 + $41,000 + $8,000– $47,000= $198,000"
OCF = EBIT + Depreciation + Amortization – Current Taxes

Step-3: Calculate ICF


Step 3: Calculate ICF or Capital Expenditure
ICF = Δ Net PPE + Depreciation + Δ Intangible Assets + Amortization + Book val
"=(($0-$57,000)+($195,000 – $100,000) +($368,000-$275,000)+ ($137,000-179,0
Note: This is a cash outflow.
Net cash used by investing activities (ICF)

Step 4: Calculate FCF

Cash Flow from transactions with debtholders:=Cash interest paid+ Cash used in d
"= $(15,000-2000)+ $0– $(158,000-125,000)=S(13,000-33,000)=-$20,000"
Cash Flow from transactions with debtholders:

Cash Flow from transactions with stockholders: = Dividend paid – New issue raise
Dividend paid – (Stock sold – Stock repurchased)

"= $60,000– ($36,000+20,000– $40,000) = $60,000– $16,000=44,000"


Cash Flow from transactions with stockholders:

Proof:
CF(A)=CF (Debtholders) + CF (Stockholders)
OCF – ICF – NINWC = CF (Debtholders) + CF (Stock

Or, CF (A) = CF (B) + CF (S)


Or, $198,000-129,000-45,000 =- $20,000+ $44,000
or, $24,000=$24,000
Rainbow Company
nanacial Cash Flows (Indirect Method)
ear Ended December 31, 2020

nvestment in net working capital (NINWC)


2019
Current Asset:
Cash $25,000.00
Account Receivable $30,000.00
Inventory $77,000.00
Prepaid Expense $21,000.00
Total Current Asset $153,000.00
Current Liabilities:
Account Payable $16,000.00
Acruied expemnse $15,000.00
Total Current liabilities $31,000.00
Workining Capital-2019 $122,000.00
Working capital 2019 $45,000.00

tep-2: Calculate OCF:


n:
$875,000.00

$679,000.00
$196,000.00

rent Taxes

ization – Current Taxes $198,000.00

ICF

ssets + Amortization + Book value of PPE sold – Cash proceeds from sale of PPE-Non-cash purchase
00-$275,000)+ ($137,000-179,000))+$41,000+ ($54,000– $32,000) +8,000+(($57,000-$62,000)+($18,

ctivities (ICF) $ 129,000.00

FCF

sh interest paid+ Cash used in debt retirement – Proceeds from long-term debt sales
,000-33,000)=-$20,000"
$ (20,000.00)

Dividend paid – New issue raised

0– $16,000=44,000"
ith stockholders: $ 44,000.00

rs) + CF (Stockholders)
= CF (Debtholders) + CF (Stockholders)

45,000 =- $20,000+ $44,000


rom sale of PPE-Non-cash purchase of PPE
0) +8,000+(($57,000-$62,000)+($18,000-$14,000))-30,000= $129,000"

ng-term debt sales


Rainbow Company
Statement of Cash Flows (Indirect Method)
For Year Ended December 31, 2020
Cash flows from operating activities
Net income
Add (deduct) items to convert net income to cash basis
Depreciation
Patent amortization
Loss on sale of equipment
Gain on sale of investments
Accounts receivable increase
Inventory increase
Prepaid expenses increase
Accounts payable increase
Interest payable increase
Accrued espense increase
Income tax payable decrease
Net cash provided by operating activities

Step 3: Calculate ICF or Capital Expenditure

ICF = Δ Net PPE + Depreciation + Δ Intangible Assets + Amortization + Book val


"=(($0-$57,000)+($195,000 – $100,000) +($368,000-$275,000)+ ($137,000-179,0
"= $129,000"
Note: This is a cash outflow.
Net cash used by investing activities

Step 4:Cash flows from financing activities:

Cashflow from transaction with debtholders:


Issuance of bonds payable($158,000-$125,000)
Cashflow from transaction with stockholders:
Issuance of common stock
Preferred stock issued
Treasury stock purchased
Payment of dividends
Net cash provided by financing activities

Net increase in cash and cash equivalents occuerd during 2020


Cash and cash equivalents at beginning of year (2020)
Cash and cash equivalents at end of year(2019)

Noncash investing and financing activities:


Issuance of preferred stock to acquire patent by $30,000

Proof:

OCF + ICF + FCF = Δ Cash and cash equivalents

0r,$177,000 -$129,000 -$11,000 = $62,000– $25,000


Or, $37,000= $37,000

The financial cash flow statement treats financing outflows as positives and
inflows as negatives, whereas the accounting cash flow statement considers
outflows as negatives and inflows as positives.
ow Company
Flows (Indirect Method)
d December 31, 2020
$ $
$  138,000.00
cash basis
$41,000.00
$8,000.00
$4,000.00
($5,000.00)
($11,000.00)
($20,000.00)
$10,000.00
$7,000.00
$2,000.00
$6,000.00
($3,000.00) $ 39,000.00
$ 177,000.00

ble Assets + Amortization + Book value of PPE sold – Cash proceeds from sale of PPE-Non-cash purc
368,000-$275,000)+ ($137,000-179,000))+$41,000+ ($54,000– $32,000) +8,000+(($57,000-$62,000)+

$ (129,000.00)

$ 33,000.00
$ 36,000.00
$ 20,000.00
$ (40,000.00)
$ (60,000.00)
$ (11,000.00)

uerd during 2020 $37,000.00


ar (2020) $62,000.00
9) $25,000.00

by $30,000

$25,000

ncing outflows as positives and


cash flow statement considers
s.
sale of PPE-Non-cash purchase of PPE
8,000+(($57,000-$62,000)+($18,000-$14,000))-30,000"

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