raft a brief memo to the president to explain why cash decreased during such a profitable year

Peoria Corp. just completed another successful year, as indicated by the following income statement: ……………………………………………………For the Year Ended December 31, 2017 Sales revenue …………………………………………………………………….$1,250,000 Cost of goods sold ………………………………………………………………….700,000 Gross profit ……………………………………………………………………..$ 550,000 Operating expenses …………………………………………………………………150,000 Income before interest and taxes ……………………………………………….$ 400,000 Interest expense ………………………………………………………………………25,000 Income before taxes ……………………………………………………………$ 375,000 Income tax expense …………………………………………………………………150,000 Net income ……………………………………………………………………..$ 225,000 Presented here are comparative balance sheets: Other information is as follows: a. Dividends of $60,000 were declared and paid during the year. b. Operating expenses include $50,000 of depreciation. c. Land and plant and equipment were acquired for cash, and additional stock was issued for cash. Cash also was received from additional bank loans. The president has asked you some questions about the year’s results. She is very impressed with the profit margin of 18% (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 $50,000. Required 1. Prepare a statement of cash flows for 2017 using the direct method in the Operating Activities section. 2. On the basis of your statement in part (1), 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. View Solution:
Peoria Corp just completed another successful year as indicated by

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