Question

Daniel’s Auto Factory manufactures an extensive line of premium auto parts for sale throughout the United...

Daniel’s Auto Factory manufactures an extensive line of premium auto parts for sale throughout the United States. Its balance sheet for the first quarter of a recent year is presented along with an analysis of selected accounts and transactions:

Daniel’s Auto Factory

March 31

January 1

Assets

Current Assets

Cash

$    921,505

$    528,787

Accounts Receivable

1,602,582

1,463,901

Inventories

2,748,788

2,504,908

Supplies

581,508

224,001

Other

59,219

59,219

    Total Current Assets

5,913,602

4,780,816

Long-Term Assets

Equipment

14,010,796

12,929,675

Accumulated Depreciation

-2,744,388

-2,468,084

Equipment (Net)

11,266,408

10,461,591

Land

574,130

624,185

Intangible Assets Net of Amortization $259,641 3/31 & $253,740 1/1

330,359

336,260

Other

100,206

111,588

    Total Long-Term Assets

12,271,103

11,533,624

Total Assets

$18,184,705

$16,314,440

Liabilities and Equity

Current Liabilities

Accounts Payable

1,279,455

998,520

Accrued Liabilities

714,473

550,386

Income Tax Payable

11,198

54,229

Short-Term Debt

0

1,000,000

Current Maturities of Long-Term Debt

429,562

134,538

    Total Current Liabilities

2,434,688

2,737,673

Long-Term Liabilities

Long-Term Debt

4,193,290

2,183,877

Deferred Income Tax

275,508

275,508

    Total Long-Term Liabilities

4,468,798

2,459,385

Total Liabilities

6,903,486

5,197,058

Stockholders’ Equity

Common Stock

91,029

91,029

Additional Paid-in Capital

9,703,985

9,703,985

Treasury Stock

-1,015,899

-1,015,899

Retained Earnings

2,502,104

2,338,267

Total Equity

11,281,219

11,117,382

Total Liabilities & Equity

$18,184,705

$16,314,440


Analysis of Selected Accounts and Transactions:

Net income was $163,837

Depreciation and amortization totaled $282,205

No equipment was sold during the period.

No intangible assets were acquired or sold.

Proceeds from issuance of long-term debt were $4,659,466, and principal payments were $2,355,029

No dividends were declared or paid

Required

Prepare a statement of cash flows using the indirect method for the three month period.

Discuss the strengths and weaknesses Daniel’s Auto Factory based on the statement of cash flows.

Homework Answers

Answer #1

Answer 1:

Statement of cash flows using the indirect method for the three month period is as below:

Answer 2:

Strengths and weaknesses Daniel’s Auto Factory based on the statement of cash flows:

Strengths:

1. Purchase of equipment being financed through long term debt

2. Improvement in current ratio through payment of short term debt by raising long term debt

3. Better payables management

Weaknesses:

1. Negative cash flow from Operating Activities

2. Build up of inventories and supplies

3. Increase in receivables

4. Higher cash

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