Refer to all of the facts in Problem 12-3A. Problem 12-3A Wabash Corp. just completed another successful

Question:

Refer to all of the facts in Problem 12-3A.

Problem 12-3A

Wabash Corp. just completed another successful year, as indicated by the following income statement:

...............................................................For the Year Ended December 31, 2017

Sales revenue ..................................................................................$2,460,000

Cost of goods sold .............................................................................1,400,000

Gross profit ..................................................................................$1,060,000

Operating expenses ..............................................................................460,000

Income before interest and taxes ..........................................................$ 600,000

Interest expense ...................................................................................100,000

Income before taxes ..........................................................................$ 500,000

Income tax expense ...............................................................................150,000

Net income ....................................................................................$ 350,000

Presented here are comparative balance sheets:

Refer to all of the facts in Problem 12-3A.
Problem 12-3A
Wabash

Other information is as follows:
a. Dividends of $350,000 were declared and paid during the year.
b. Operating expenses include $25,000 of depreciation.
c. Land was sold for its book value, and new plant and equipment were acquired for cash.
d. Part of the bank loan was repaid, and additional common stock was issued for cash.
The president has asked you some questions about the year's results. She is very impressed with the profit margin of 14% (net income divided by sales revenue). She is bothered, however, by the decline in the company's cash balance during the year. One of the conditions of the existing bank loan is that the company maintain a minimum cash balance of $100,000.
Required
1. Using the format in the chapter's appendix, prepare a statement of cash flows work sheet.
2. Prepare a statement of cash flows for 2017 using the indirect method in the Operating Activities section.
3. On the basis of your statement in part (2), draft a brief memo to the president to explain why cash decreased during such a profitable year. Include in your explanation any recommendations for improving the company's cash flow in future years.

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