# Chap1

```Solutions to Problems: Chapter 1
a.
b.
c.
Beg. Rec.
\$0
\$900
\$1,000
Sales
a.
b.
c.
\$2,000
\$5,000
\$2,500
End Rec.
\$500
\$1,500
\$750
less
-
Sales
\$2,000
\$5,000
\$2,500
Change in
Accounts
Receivable
\$500
\$600
(\$250)
equals
=
=
=
\$1,500
\$4,400
\$2,750
2. Cash paid to suppliers.
Data:
a.
b.
c.
Beginning
Accounts
Payable
BAP
\$0
\$0
\$500
Ending
Accounts
Payable
EAP
\$600
\$600
\$300
Beginning
Inventory
_______
BI
\$0
\$300
\$800
Calculation of Purchases: (PUR = EI - BI + COGS)
EI
BI
COGS
a.
\$1,200
\$0
\$2,000
b.
\$1,500
\$300
\$3,000
c.
\$500
\$800
\$5,000
Ending
Inventory
_______
EI
\$1,200
\$1,500
\$500
Cost of
Goods Sold
_______
COGS
\$2,000
\$3,000
\$5,000
PUR
\$3,200
\$4,200
\$4,700
Cash payment to suppliers: (COGS + (EI - BI) - (EAP - BAP)) or (PUR - (EAP - BAP))
PUR
EAP
BAP
Cash Paid
a.
\$3,200
\$600
\$0
\$2,600
b.
\$4,200
\$600
\$0
\$3,600
c.
\$4,700
\$300
\$500
\$4,900
3. Genesis Enterprises, Inc. - developing a cash flow statement.
Balance Sheet
12/31/12
Cash
\$500
Accounts Receivable
\$750
12/31/13
\$500
\$2,000
a.
b.
4.
Inventory
Fixed assets
Acc. Dep.
Total Assets
\$400
\$1,000
(\$400)
\$2,250
\$600
\$1,000
(\$700)
\$3,400
Accounts Payable
Operating Accruals
Debt
Common
Stock
Retained Earnings
Total
Liabilities
\$200
\$300
\$1,000
\$950
\$275
\$1,000
\$500
\$500
\$250
\$675
\$2,250
\$3,400
Income Statement
1/01/13 - 12/31/13
-------------------------Sales
- Cost of goods sold
\$9,000
\$4,500
= Gross profit
\$4,500
- Operating expenses
\$3,800
(includes depreciation)
= Operating profit
\$700
- Interest
\$100
- Taxes
\$175
= Net profit
\$425
Cash Flow
Change
-------------\$1,250
-  A/R
\$750
-  A/P
\$200
+  Inv
Gross cash margin =
-  Op
(\$25)
Acc
\$300
-  Dep
Cash operating margin =
-  Acc
\$0
Interest
-  Acc
\$0
Taxes
-  Def
\$0
Taxes
Cash Flow
---------\$7,750
\$3,950
\$3,800
\$3,525
\$275
\$100
\$175
\$0
Discussion: Profit does not equal cash for several reasons. First, the company's revenue was \$9,000, but
it only collected \$7,750 from its customers. Then it expensed COGS of \$4,500 but only paid out cash of
\$3,950 due primarily to an increase in accounts payable. Finally, it expensed \$3,800 for operations but
paid out only \$3,525 due to \$300 of the expenses being for depreciation and operating accruals falling by
\$25.
Crestin International, Inc. - developing a cash flow statement.
Balance Sheet
Cash
Accounts receivable
12/31/11
\$200
\$800
12/31/12
\$550
\$700
a.
Inventory
Fixed assets
(Accumulated
depreciation)
Total Assets
\$250
\$1,000
\$150
\$1,000
(\$400)
(\$600)
\$1,850
\$1,800
Accounts payable
Operating accruals
Debt
Common stock
Retained earnings
\$200
\$300
\$750
\$400
\$200
\$1,850
\$250
\$150
\$395
\$400
\$605
\$1,800
Developing a cash flow statement.
Income Statement
1/01/12 - 12/31/12
Sales
- Cost of goods sold
\$4,500
\$2,200
= Gross profit
\$2,300
- Operating expenses
\$1,500
(includes depreciation)
= Operating profit
Cash Flow
-  A/R
-  A/P
+  Inv
-  Op
Acc
-  Dep
\$800
- Interest
\$75
- Taxes
\$320
= Net profit
\$405
-  Acc
Interest
-  Acc
Taxes
Change
(\$100)
\$50
(\$100)
Gross cash margin =
Cash Flow
\$4,600
\$2,050
\$2,550
(\$150)
\$200
Cash operating margin
=
\$1,450
\$1,100
\$0
\$75
\$0
\$320
\$705
b.
Profit does not equal cash for several reasons. First, Landmark generated revenues of \$4,500, yet it
collected cash of \$4,600 by drawing down its balance of receivables by \$100. Second, it expensed
\$2,200 for COGS but only paid out cash of \$2,050 by increasing accounts payable \$50 and by
accumulating inventory of \$100. It then expensed \$1,500 for operations but only paid out \$1,450 due to
depreciation of \$200 and a decrease of accruals of \$150. This resulted in \$705 of operating cash flow.
Out of this, \$355 of debt was paid off, leaving \$350 excess cash to add to the beginning cash balance of
\$200 resulting in an ending balance of \$550.
```