Question

Comparative financial statement data for Carmono Company follow:

	This Year			Last Year
Assets
Cash	$	17.00		$	33.00
Accounts receivable		88.00			81.00
Inventory		140.00			128.60
Total current assets		245.00			242.60
Property, plant, and equipment		288.00			232.00
Less accumulated depreciation		60.80			45.60
Net property, plant, and equipment		227.20			186.40
Total assets	$	472.20		$	429.00
Liabilities and Stockholders’ Equity
Accounts payable	$	84.00		$	65.00
Common stock		194.00			148.00
Retained earnings		194.20			216.00
Total liabilities and stockholders’ equity	$	472.20		$	429.00

For this year, the company reported net income as follows:

Sales	$	1,800.00
Cost of goods sold		1,080.00
Gross margin		720.00
Selling and administrative expenses		700.00
Net income	$	20.00

This year Carmono declared and paid a cash dividend. There were no sales of property, plant, and equipment during this year. The company did not repurchase any of its own stock this year.

Required:

1. Using the indirect method, prepare a statement of cash flows for this year.

2. Compute Carmono’s free cash flow for this year.

Answer 1

Cash Flow Statement
Cash flows from Operating activities
Net Income for the year		20
Adjustment required
Depreciation expense		15.2
Increase in Accounts receivable		-7
Increase in Inventory			-11.4
Increase in Accounts payable		19
Net cash provided from Operating activities	35.8
Cash flows from Investing activities
Purchase of Equipment		-56
Net cash used in investing activities		-56
Cash flows from Financing activities:
Issuance of stock			46
Dividend paid			-41.8
Net cash provided from Financing activities		4.2
Net Increase in cash				-16
Beginning balance of cash			33
Ending balance of cash			17
Free cash Flows:
Net cashflows from Operatng activities		35.8
Less: Capital expenditures			-56
Free cash Flows:				-20.2