Question

Logan Company is a merchandiser that prepared the statement of cash flows and income statement provided below:

Logan Company
Income Statement
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,120
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,890
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,230
Selling and administrative expenses . . . . . . . . . . . . . . 835
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . 395
Nonoperating items: Loss on sale of equipment . . . . . . (3)
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 175
Required:
Assume that you have been asked to teach a workshop to the employees within Logan Company’s Marketing Department. The purpose of your workshop is to explain how the statement of cash flows differs from the income statement. Your audience is expecting you to explain the logic underlying each number included in the statement of cash flows. Prepare a memo that explains the format of the statement of cash flows and the rationale for each number included in Logan’s statement of cashflows.


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  • CreatedSeptember 27, 2013
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