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Lion, Inc. Cash Flows Case Study

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  1. Lion, Inc. has the following cash transactions for the period:

[pic 1][pic 2][pic 3]

Prepare a direct statement of cash flows, assuming the balance of cash at the beginning of the period was $4,000.

Statement of Cash Flows (Direct)

Beginning cash

4000

Cash from Operations

Cash received from the sale of products to customers

35000

Cash paid to merchandise supplier

(11000)

Cash paid to workers

(23000)

Cash paid for advertisement

(3000)

Cash received for sale of services to customers

25000

Total cash from operations

23000

Cash from Investing

Cash paid to purchase factory equipment

(45000)

Cash received from the sale of an unused warehouse

12000

Total cash from investing

(33000)

Cash from Financing

Cash received from the bank for long-term loans

40000

Cash paid for dividends to stockholders

(5000)

Total cash from financing

35000

Change in cash

25000

Ending cash

29000

  1. During its first five years of operations, Jalen, Inc. reports net income and pays dividends as follows.

[pic 4]

Calculate the balance of retained earnings at the end of each year.

Year

Net income

Dividends

Retained Earnings

1

$ 1,200

$ 500

$ 700

2

1,700

$ 500

$ 1900

3

2,100

1,000

$ 3000

4

3,200

1,000

$ 5200

5

4,400

1,000

$ 8600

Retained earnings = Beginning Retained earnings + Net income – Dividends

Retained earnings (1) = 0 + 1200 – 500 = $700

Retained earnings (2) = 700 + 1700 – 500 = $1900

Retained earnings (3) = 1900 + 2100 – 1000 = $3000

Retained earnings (4) = 3000 + 3200 – 1000 = $5200

Retained earnings (5) = 5200 + 4400 – 1000 = $8600

  1. Consider the following unrelated scenarios:
  1. Leon reports an increase in retained earnings of $2.2 billion and net income of $4.9 billion. What was the amount of dividends paid?

   

Dividends = Beginning Retained earnings + Net income – Retained earnings.

Dividends = 0 + $4.9 billion – $2.2 billion = $2.7 billion

 

  1. Moore reports an increase in retained earnings of $2.4 billion and dividends of $1.6 billion. What was the amount of net income?

Net income = Dividends + Retained earnings - Beginning Retained earnings.

Net income = $1.6 billion + $2.4 billion – 0 = $4.0 billion

  1. Nandu reports and increase in retained earnings of $1.5 billion and net income of $1.5 billion. What was the amount of dividends paid?

Dividends = Beginning Retained earnings + Net income – Retained earnings.

Dividends = 0 + $1.5 billion – $1.5 billion = $ 0

  1. Ovid reports beginning retained earnings of $(1.8) billion, a net loss of $0.9 billion, and no dividends. What is the amount of ending retained earnings?

Retained earnings = Beginning Retained earnings + Net income – Dividends

Retained earnings = $(1.8) billion + $(0.9) billion + 0 = $(2.7) billion

  1. Pulse reports ending retained earnings of $1.36 billion, net income of $0.33 billion, and dividends of $0.05 billion. What is the amount of beginning retained earnings?

Beginning Retained earnings = Retained earnings (end) - Net income + Dividends.      

Beginning Retained earnings = $1.36 billion - $0.33 billion + $0.05 = $1.08 billion

  1. Consider the following unrelated scenarios related to cash flows:
  1. Quartz reports operating cash flows of $3.5 billion, investing cash flows of $0.5 billion, and financing cash flows of $(4.0) billion. What was the amount of total change in cash?

Beginning cash

0

Operating cash flows

$3.5 billion

Investing cash flows

$0.5 billion

Financing cash flows

$(4.0) billion

Change in cash

0

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