Question

Excel Online Structured Activity: Statement of cash flows

You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year, and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $700,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.4 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $460,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 7% interest rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Open spreadsheet

What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary.

Answer 1

Cash Flow Statement
Net Income	5000000
Cash Flow from operating activities
Add Depreciation	460000
Total Cash flow from operating actiivities	5460000
Cash flow from investing activities
less Increase in Plant and machinery	-5400000
total from investing	-5400000
Cash flow from financing activities
less Dividends Paid	-700000
Add Issue of long term debt	1000000
Total from financing	300000
Net Change in Cash flow = Operating+investing+financing	360000

Ending Cash balance = Beginning Cash Balance + Net Change in Cash Flow
   = $100000+$360000
Ending Cash Balance = $460,000