Sharon Feldman, president of Allied Products, considers $20,000 to be a minimum cash balance for operating purposes. As can be seen from the following statements, only $15,000 in cash was available at the end of 2008. Since the company reported a large net income for the year, and also issued bonds and sold some long-term investments, the sharp decline in cash is puzzling to Ms. Feldman.

The following additional information is available for the year 2008:
a. The company sold long-term investments with an original cost of $30,000 for $50,000 during the year.
b. Equipment that had cost $90,000 and on which there was $40,000 in accumulated depreciation was sold during the year for $44,000.
c. Cash dividends totaling $28,000 were declared and paid during the year.
d. The stock of a dissident stockholder was repurchased for cash and retired during the year. No issues of stock were made.
Required:
1. Using the indirect method, compute the net cash provided by operating activities for 2008.
2. Using the data from (1) above and other data from the problem as needed, prepare a statement of cash flows for 2008.
3. Explain the major reasons for the decline in the company€™s cashbalance.

Transcribed Image Text:

Allied Products Comparative Balance Sheet December 31, 2008, and 2007 2007 Current assets: $ 15,000 33.000 210,000 196,000 15,000 454,000 120,000 750,000 190,000 560,000 300,000 250,000 7,000 572,000 90,000 860,000 210,000 650,000 Prepaid expenses Total current assets Long-term investments . Plant and equipment Net plant and equipment Total assets Liabilities and Stockholders' Equity $1.312,000 $1,134,000 Current liabilities: Accounts payable 275,000 $ 230,000 15,000 245,000 100,000 39,000 384,000 Accrued liabilities Total current liabilities Bonds payable 8,000 283,000 200,000 42,000 525,000 Deferred income taxes Total liabilities Stockholders' equity: Common stock 600,000 150,000 750,000 $1.312,000 $1,134,000 595,000 192,000 Retained earrings Total stockholders' equity Total liabilities and stockholders' equity 787,000 Allied Products Income Statement For the Year Ended December 31, 2008 Sales ss Cost of goods sold Gross margin $800,000 500,000 300,000 Selling and administrative expenses Net operating income. Nonoperating items: 86,000 Gain on sale of investments $20,000 Loss on sale of equipment Income before taxes Income taxes Net income 6,00014,000 100,000 30,000 S 70,000