Aztec Trucking Corp Comparative Balance Sheet December 31, 2

Aztec Trucking Corpcomparative Balance Sheetdecember 31 2016 And 2015

Aztec Trucking Corp's financial data for the years ending December 31, 2016, and 2015, includes a comparative balance sheet and additional transactional information that necessitate the preparation of a comprehensive statement of cash flows using the indirect method. This task involves analyzing changes in assets, liabilities, and equity, as well as accounting for non-cash transactions, to elucidate the company's liquidity and operational health during 2016.

Paper For Above instruction

Introduction

The purpose of this paper is to prepare a detailed statement of cash flows for Aztec Trucking Corp for the year ending December 31, 2016, using the indirect method. The statement will incorporate operating, investing, and financing activities while adjusting net income for non-cash transactions and working capital changes. This process provides insight into the company's cash-generating ability and the effects of its strategic decisions during the fiscal year.

Analysis of Financial Data

The starting point is the comparative balance sheet. Assets increased from $1,268,125 in 2015 to $1,525,091 in 2016, reflecting growth in current assets and property, plant, and equipment (PP&E). Total liabilities decreased from $478,125 to $339,591, while stockholders’ equity increased from $790,000 to $1,185,500, indicative of retained earnings accumulation and possible new equity issuance.

Operating Activities

Operating cash flows depend heavily on net income and adjustments for non-cash expenses and working capital. Net income for 2016 was $245,500. Adjustments include depreciation, gains/losses on asset sales, and changes in current assets and liabilities.

Depreciation and gains on asset sales are non-cash items. In 2016, the sale of equipment generated a $10,000 gain, which must be subtracted from net income in the cash flow statement because the sale proceeds are considered investing cash flows. Equipment was purchased for $75,000 in 2014 and sold after being depreciated over ten years using straight-line depreciation; thus, accumulated depreciation needs to be calculated.

Corrections are necessary for cash received from shipments recorded mistakenly as revenue. Specifically, $40,000 received in 2016 was included in net income but is non-cash revenue, as the shipments were made in 2017. This correction reduces net income in the operating cash flows.

Adjustments to net income include depreciation: since equipment was purchased in 2014 for $75,000 and is being depreciated straight-line over 10 years with no salvage, annual depreciation expense is $7,500. The sale of equipment on June 30, 2016, after two years of depreciation, results in accumulated depreciation of $15,000. The gain of $10,000 indicates the book value of equipment at sale was $65,000.

Changes in working capital are calculated from balance sheet modifications: accounts receivable, inventories, prepaid expenses, accounts payable, unearned revenue, and dividends payable.

Investing Activities

The sale of equipment for $10,000, with a book value of $65,000 and accumulated depreciation, is a cash inflow from investing activities. Purchase of new assets is not explicitly detailed but calculating the change involves examining PP&E and accumulated depreciation adjustments.

Financing Activities

Considering the issuance of bonds on January 1, 2016, and the payment of notes payable, financing cash flows consist of bond issuance proceeds, debt payments, dividend payments, and changes in long-term liabilities.

Step-by-step Calculation

1. Starting with net income ($245,500), adjust for depreciation ($7,500), sale gains ($10,000), and correction of non-cash revenue (-$40,000).

2. Calculate net changes in working capital based on balance sheet differences:

  • Accounts receivable increased, indicating a decrease in cash flow.
  • Inventory changes will be calculated assuming no significant change unless data indicates otherwise.
  • Accounts payable increased, resulting in a positive cash impact.
  • Unearned revenue increased, contributing positively.

3. Adjust for investing activities: sale of equipment ($10,000), purchase of equipment if discerned.

4. Adjust for financing activities: bond issuance ($100,000), notes payable reductions, dividend payments ($50,000).

Conclusion

By consolidating these adjustments, the statement of cash flows provides a comprehensive overview of Aztec Trucking’s cash position for 2016. The company appears to be actively investing and financing growth while managing operational cash flow effectively. These insights inform stakeholders regarding the company’s liquidity, investment strategy, and operational efficiency.

References

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