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Company cash flow evaluation B-16.12 Waguespack Corporation and Hedrick Corporation

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Waguespack Corporation and Hedrick Corporation had identical cash positions at the beginning and end of 20X9. Each company also reported a net income of $150,000 for 20X9. Evaluate their cash flow statements that follow. Which company is displaying elements of cash flow stress? What factors cause you to reach this conclusion? What is the importance of evaluating a company’s cash flow statement? Knowledge of cash flow statement components B-16.11 Company cash flow evaluation B-16.12 WAGUESPACK CORPORATION Statement of Cash Flows For the Year Ending December 31, 20X9 Cash flows from operating activities: Net income $150,000 Add (deduct) noncash effects on operating income Depreciation expense $ 20,000 Gain on sale of equipment (185,200) Increase in accounts receivable (45,000) Decrease in inventory 37,500 Increase in accounts payable 11,400 Decrease in income taxes payable (3,000) (164,300) Net cash provided by operating activities $ (14,300) Cash flows from investing activities: Sale of equipment 204,900 Cash flows from financing activities: Proceeds from long-term borrowing 20,000 Net increase in cash $210,600 Cash balance at January 1, 20X9 66,000 Cash balance at December 31, 20X9 $276,600 HEDRICK CORPORATION Statement of Cash Flows For the Year Ending December 31, 20X9 Cash flows from operating activities: Net income $150,000 Add (deduct) noncash effects on operating income Depreciation expense $160,000 Decrease in accounts receivable 43,700 Increase in inventory (87,500) Decrease in accounts payable (8,100) Decrease in income taxes payable (8,600) 99,500 Net cash provided by operating activities $249,500 Cash flows from investing activities: Purchase of equipment (20,400) Cash flows from financing activities: Repayment of long-term borrowing (18,500) Net increase in cash $210,600 Cash balance at January 1, 20X9 66,000 Cash balance at December 31, 20X9 $276,60

 
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