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Valley Merchandising Corp Assignment
Valley Merchandising Corp Assignment
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VALLEY MERCHANDISING CORP Income Statement For the Year Ended 12-31-20 ($ in millions) |
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Sales revenue |
75 |
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Cost of goods sold |
(30) |
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Depreciation expense |
(5) |
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Remaining expenses |
(35) |
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Net Income |
5 |
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VALLEY MERCHANDISING CORP Balance Sheet As of 12-31-20 ($ in millions) |
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Cash |
1 |
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Accounts receivable |
20 |
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Inventory |
15 |
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Property, Plant & Equipment |
44 |
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Total Assets |
80 |
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Accounts payable |
2 |
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Accrued current expenses payable |
7 |
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Long term notes payable |
36 |
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Common stock |
30 |
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Retained earnings |
5 |
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Total liabilities and Equity |
80 |
Suggested Memo Format to Use (remember, you are writing a memo to your boss, and you are the accounting expert):
Paragraph 1: Write one sentence explaining that it is possible to have positive net income and negative cash flows. Write one sentence with the statement, “Although we had $5 million in net income for the period, cash flow from operating activities was $ ________.”
Paragraph 2: Provide your calculation for cash flow from operating activities. Do this in table format.
Paragraph 3: Explain that the discrepancy between net income and cash flow from operating activities arises because the company uses the accrual method of accounting, which is required under US GAAP. Briefly define the accrual method of accounting. Explain that the calculation of cash flow demonstrates why there is a difference between income and cash. Draw the conclusion company cannot pay dividends. (“Therefore, we cannot pay dividends,” or “Because of our ending cash position, we cannot pay dividends.”)
Paragraph 4: Finish your memo with a simple statement that says “Let me know if I can provide you any further details.” (Or something similar).
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