Income Statement and Cash Flows

8 August 2016

The following information was taken from the 2006 financial statements of pharmaceutical giant Merck and Co. All dollar amounts are in millions. Retained earnings, January 1, 2006 $37,980. 0 Materials and production expense 6,001. 1 Marketing and administrative expense 8,165. 4 Dividends 3,318. 7 Sales revenue 22,636. 0 Research and development expense 4,782. 9 Tax expense 1,787. 6 Other revenue 2,677. 1 Hint: Prepare income statement and retained earnings statement. (SO 4) Instructions (a) After analyzing the data, prepare an income statement and a retained earnings statement for the year ending December 31, 2006.

(b) Suppose that Merck decided to reduce its research and development expense by 50%. What would be the short-term implications? What would be the long-term implications? How do you think the stock market would react? E1-12 This information is for Damon Corporation for the year ended December 31, 2010. Cash received from lenders $20,000 Cash received from customers 60,000 Cash paid for new equipment 35,000 Cash dividends paid 8,000 Cash paid to suppliers 18,000 Cash balance 1/1/10 12,000 Hint: Prepare a statement of cash flows. (SO 5)

Income Statement and Cash Flows Essay Example

Instructions • Prepare the 2010 statement of cash flows for Damon Corporation. • Suppose you are one of Damon’s creditors. Referring to the statement of cash flows, evaluate Damon’s ability to repay its creditors. E1-13 The following data are derived from the 2006 financial statements of Southwest Airlines. All dollars are in millions. Southwest has a December 31 year-end. Cash balance, January 1, 2006 $2,280 Cash paid for repayment of debt 607 Cash received from issuance of common stock 260 Cash received from issuance of long-term debt 300

Cash received from customers 9,081 Cash paid for property and equipment 1,399 Cash paid for dividends 14 Cash paid for repurchase of common stock 800 Cash paid for goods and services 7,583 Hint: Prepare a statement of cash flows. (SO 5) Instructions (a) After analyzing the data, prepare a statement of cash flows for Southwest Airlines for the year ended December 31, 2006. (b) Discuss whether the company’s cash from operations was sufficient to finance itsinvesting activities. If it was not, how did the company finance its investing activities?

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