Given the financial information for the A.E. Neuman Corporation, - 4723

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Request Description

Given the financial information for the A.E. Neuman Corporation,

 

a) Prepare a Statement of Cash Flows for the year ended December 31, 2002.

b) What is the dividend payout ratio for 2003?

c) If we increased the dividend payout ratio to 100%, what would happen to retained earnings?

 

 

 

 

 

Difficulty: Medium to Hard 

 

Answer: 

 

a) Cash Flows from Operating Activities:

Net Income (earnings after taxes) $400,000

Adjustments: 

Add back depreciation 150,000 

Decrease in marketable securities 15,000 

Decrease in accounts receivable 20,000 

Increase in inventories (45,000) 

Decrease in accounts payable (25,000) 

Decrease in notes payable (55,000) 

Decrease in accrued expenses (25,000) 

Increase in incomes taxes payable 5,000 

Total Adjustments 40,000

Net Cash Flows from Operating Activities $440,000

Cash Flows from Investing Activities 

Decrease in Investments 15,000 

Increase in Plant & Equipment (250,000) 

Net Cash Flows from Investing Activities (235,000)

Cash Flows from Financing Activities 

Increase in Bonds Payable 100,000 

Dividends Paid (300,000) 

Net Cash Flows from Financing Activities (200,000)

Net Increase (Decrease) in Cash Flows 5,000

b) 

c) The 2003 value for retained earnings would decrease by $100,000 to $400,000. In addition, Assets would have to decrease by $100,000 or other liabilities would have to increase by the same amount.

 

Solution Description

Given the financial information for the A.E. Neuman Corporation,

a) Prepare a Statement of Cash Flows for the year ended December 31, 2002.
b) What is the dividend payout ratio for 2003?
c) If we increased the dividend payout ratio to 100%, what would happen to retained earnings?