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Chapter 2: 3DQ (page 46)
Explain how depreciation generates actual cash flows for the company.
Depreciation refers to the decrease in the fair value of the company鈥檚 assets over a period of time. Depreciation is charged due to the usage of the assets by the organization and their obsolescence.
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Quantum Technology had \(669,000 of retained earnings on December 31, 20X2. The company paid common dividends of \)35,500 in 20X2 and had retained earnings of $576,000 on December 31, 20X1. How much did Quantum Technology earn during 20X2, and what would earnings per share be if 47,400 shares of common stock were outstanding?
The Sterling Tire Company鈥檚 income statement for 20X1 is as follows:
STERLINE TIRE COMPANY Income Statement For the year ended December 31, 20X1 | |
Sales (20,000 tires at \(60 each) | \)1,200,000 |
Less: variable costs (20,000 tires at \(30) | 600,000 |
Less: fixed cost | 400,000 |
Earnings before interest and taxes (EBIT) | \)200,000 |
Interest expenses | 50,000 |
Earning before taxes (EBT) | \(150,000 |
Income tax expenses (30%) | 45,000 |
Earning after taxe (EAT) | \)105,000 |
Given this income statement, compute the following:
a. Degree of operating leverage.
What are the three primary sections of the statement of cash flows? In what section would the payment of a cash dividend be shown?
What conditions would help make a percent-of-sales forecast almost as accurate as pro forma financial statements and cash budgets?
Watt鈥檚 Lighting Stores made the following sales projection for the next six months. All sales are credit sales.
March | \(35,000 |
April | 41,000 |
May | 30,000 |
June | 39,000 |
July | 47,000 |
August | 49,000 |
Sales in January and February were \)38,000 and $37,000, respectively. Experience has shown that of total sales, 10 percent are uncollectible, 30 percent are collected in the month of sale, 40 percent are collected in the following month, and 20 percent are collected two months after sale.
Prepare a monthly cash receipts schedule for the firm for March through
August.
Of the sales expected to be made during the six months from March through August, how much will still be uncollected at the end of August? How much of this is expected to be collected later?
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