Waguespack Corporation and Hedrick Corporation had identical cash positions at the beginning and end of 20X9. Each
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Waguespack Corporation and Hedrick Corporation had identical cash positions at the beginning and end of 20X9. Each company also reported a net income of $150,000 for 20X9. Evaluate their cash flow statements that follow.
Which company is displaying elements of cash flow stress? What factors cause you to reach this conclusion? What is the importance of evaluating a company's cash flow statement?
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WAGUESPACK CORPORATION Statement of Cash Flows For the Year Ending December 31, 20X9 Cash flows from operating activities: Net income Add (deduct) noncash effects on operating income $150,000 Depreciation expense Gain on sale of equipment $ 20,000 (185,200) Increase in accounts receivable (45,000) Decrease in inventory 37,500 Increase in accounts payable 11,400 Decrease in income taxes payable (3,000) (164,300) Net cash provided by operating activities $ (14,300) Cash flows from investing activities: Sale of equipment 204,900 Cash flows from financing activities: Proceeds from long-term borrowing Net increase in cash Cash balance at January 1, 20X9 Cash balance at December 31, 20X9 20,000 $210,600 66,000 $276,600
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