Duke In.
Statement of income
For the year ended December 31, 2008
Revenues $1,250,000
Expenses:
Salaries and wages $480,000
Supplies 65,000
Utilities 30,000
Rent 120,000
Depreciation 345,000
Interest 138,000
Total Expenses $1,178,000
Net Income 72,000
Based on its relatively modest profit margin of 5.76% (net income of $72,000 divided by revenues of $1,250,000), 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, $230,000 of the revenues is yet to be collected in cash.
b. Employees are paid on a monthly basis. Salaries and wages of $480,000 include the December payroll of $40,000, which will be paid on January 5, 2009.
c. The company purchased $100,000 of operating supplies when it began operations in Jan uary. The balance of supplies on hand at December 31 amounts to $35,000.
d. Office space is rented in a downtown high-rise building at a monthly cost of $10,000. 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 $1,725,000. 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 1,725,000 on the date of the purchase. The principal amount of the note and interest for the three years are due on January 1, 2011.
Required
1. 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.