Question

Ritter Corporation’s accountants prepared the following financial statements for year-end.

RITTER CORPORATION
Income Statement
2020
Revenue	$	1,085
Expenses		755
Depreciation		90
EBT	$	240
Taxes		96
Net income	$	144
Dividends	$	50

   

RITTER CORPORATION
Balance Sheets
December 31
		2019			2020
Assets
Cash	$	70		$	85
Other current assets		224			280
Net fixed assets		710			827
Total assets	$	1,004		$	1,192
Liabilities and Equity
Accounts payable	$	276		$	290
Long-term debt		0			80
Stockholders’ equity		728			822
Total liabilities and equity	$	1,004		$	1,192

a.	What is the change in cash during the year 2020. (Do not round intermediate calculations.)
b.	Determine the change in net working capital in 2020. (Do not round intermediate calculations.)
c.	Determine the cash flow generated by the firm’s assets during the year 2020. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations.)

Answer 1

(a)-Change in cash

Change in cash = Cash at the beginning – Cash at the ending

= $85 - $70

= $15

(b)-Change in net working capital

Change in net working capital = Change in current assets – Change in current liabilities

= [($85 + $280) – ($70 + $224)] – [$290 - $276]

= [$365 - $294] - $14

= $71 - $14

= $57

(c)-Cash flow from asset

Operating cash flow = Net income + Depreciation

= $144 + $90

= $234

Net capital spending = (FA at the End – FA at the Beginning) + Depreciation

= [$827 - $710] + $90

= $207

Therefore, the Cash flow from assets = Operating cash flow – Net capital spending - Change in net working capital

= $234 - $207 - $57

= -$30 (Negative)