Duke In.Statement of incomeFor the year ended December 31 2008Revenues $1250000Expenses: Salaries and wages $480000 Supplies 65000 Utilities 30000 Rent 120000 Depreciation 345000 Interest
138000 Total Expenses $1178000Net Income 72000Based on its relatively modest profit margin of 5.76% (net income of
$72000 divided by revenues of $1250000) you are concerned about joining the
new business. To alleviate your
concerns the president of the company is able to give you the following
additional information:a.
Clients are given 90 days to pay their bills for
consulting services provided by Duke. On
December 31 2008 $230000 of the revenues is yet to be collected in cash.b.
Employees are paid on a monthly basis. Salaries and wages of $480000 include the
December payroll of $40000 which will be paid on January 5 2009.c.
The company purchased $100000 of operating
supplies when it began operations in Jan uary.
The balance of supplies on hand at December 31 amounts to $35000.d.
Office space is rented in a downtown high-rise
building at a monthly cost of $10000.
When the company moved into the office in January it prepaid its rent
for the next 18 months beginning January 1 2008.e.
On January 1 2008 Duke purchased a computer
system and related accessories at a cost of $1725000. The estimated useful life of the system is
five years.f.
The computer system was purchased by signing a
three-year 8% note payable for 1725000 on the date of the purchase. The principal amount of the note and interest
for the three years are due on January 1 2011.Required1.
Based on
the income statement and the additional information given prepare a statement
of cash flows for Duke for 2008.
(Hint: Simply list all of the
cash inflows and outflows that relate to operations).2.
On the basis of the income statement given and
the statement of the cash flows prepared in (1) do you think it would be wise
decision to join the company as its chief financial officer? Include in your response any additional
question that you believe are appropriate to ask before joining the company.