Question

The following is Folex Company's income statement and balance sheet (in millions):
The following additional information is available:
i) Operating expenses include $35 million of depreciation.
ii) Property and equipment were acquired for cash.
iii) Additional common stock was issued for cash.
iv) Additional cash was obtained by issuing bonds.
v) Dividends were paid.
The CEO has posed some questions regarding this year's results. She is pleased that the profit margin is approaching 15 percent. However, the decrease in the cash balance during such a profitable year troubles her.
Required
a. Prepare a complete statement of cash flows for Folex using the direct method for operating cash flows. Prepare a separate schedule showing operating cash flows using the indirect method.
b. Based on the statement you prepare, explain to the CEO why cash decreased during a profitable year.


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  • CreatedJuly 16, 2015
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