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Laforge Company Sol

LaForge Company's net cash flow from operations was $152 due to a net income of $105, depreciation of $60, and changes in various balance sheet accounts. Its net cash flow from investing was ($149) due to plant assets purchased of $349 offset by $200 from plant assets sold. Its net cash flow from financing was $3 due to $38 from capital raised and $40 from an increase in bonds payable, offset by $75 in dividends paid. The company's overall net cash flow was $6, equal to the increase in cash on its balance sheet.

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151 views3 pages

Laforge Company Sol

LaForge Company's net cash flow from operations was $152 due to a net income of $105, depreciation of $60, and changes in various balance sheet accounts. Its net cash flow from investing was ($149) due to plant assets purchased of $349 offset by $200 from plant assets sold. Its net cash flow from financing was $3 due to $38 from capital raised and $40 from an increase in bonds payable, offset by $75 in dividends paid. The company's overall net cash flow was $6, equal to the increase in cash on its balance sheet.

Uploaded by

Panini K
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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LAFORGE COMPANY

Cash Flow from Operations

Net Income before tax 70+35=105


Add depreciation expense 60
Less cash outflow for Tax paid (52)* (explained in point 1 under explanations)
Add decrease in accounts receivable 50
Less increase in inventory (30)
Less increase in prepaid expense (8)
Add increase in accounts payable 25
Add increase in salary payable 2

Net CFO = 152

Cash Flow from Investment

Cash Inflow: Plant assets sold = 200

Cash Outflow: Plant asset purchased = (349)* (explained in point 2)

Net CFI = 200 – 349 = (149)

Cash Flow from Financing Activities

Capital raised = 338-300 = 38

Dividends paid = (75)

Add increase in bonds payable = 40

Net CFF = 38 – 75 + 40 = 3

Therefore,

Net Cash Flow = CFF + CFI + CFF = 152 – 149 + 3 = 6 (same as increase in Cash in Balance Sheet)
Explanations –

1.

Income Tax Payable

Opening balance 107

Closing balance 90

Then, from P and L, we get,

Income Tax expense Dr 35

Income Tax payable Cr 35

And when tax is paid:

Income tax payable Dr x

Cash

Income Tax Payable


Cash x Opening balance 107

Closing balance 90 Income tax expense 35

Now, x +90 = 107+35

x = 52

Actual Cash outflow on Tax paid = 52

2. Purchase of Plant Assets

a. Gross opening balance: 1000

Gross value sold : 300

Gross left after sale : 670

But we see year end gross balance as 1019,

So, we must have purchased: 1019-670 = 349

Alternative explanation:

Opening balance – Depreciation + Purchases –Sold = Closing Balance

From balance sheet

Plant assets: Opening balance BV = 1000-597 = 403

Plant assets: Closing balance BV = 1019-527 = 492


From P and L account: Depreciation = 60

Plant assets sold BV = 200

Therefore, Plant Assets purchased = 492 – 403 + 60 + 200 = 349

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