Question

Comparative financial statement data for Carmono Company follow: This Year Last Year Assets Cash $ 12.50...

Comparative financial statement data for Carmono Company follow:

This Year Last Year
Assets
Cash $ 12.50 $ 24.00
Accounts receivable 70.00 63.00
Inventory 117.50 105.20
Total current assets 200.00 192.20
Property, plant, and equipment 261.00 214.00
Less accumulated depreciation 53.60 40.20
Net property, plant, and equipment 207.40 173.80
Total assets $ 407.40 $ 366.00
Liabilities and Stockholders’ Equity
Accounts payable $ 70.50 $ 56.00
Common stock 158.00 121.00
Retained earnings 178.90 189.00
Total liabilities and stockholders’ equity $ 407.40 $ 366.00

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

Sales $ 1,350.00
Cost of goods sold 810.00
Gross margin 540.00
Selling and administrative expenses 520.00
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.

Homework Answers

Answer #1

1.

statement of cash flows

Operating activities (i)
Net income 20
Depreciation expense 13.40
Incresase in accounts receivable -7
Increase in inventory -12.30
Increase in accounts payable 14.50
Net cash flow from operating activities 28.6
Investing activities (ii)
Purchase of property, plant and equipment -47
Net cash used in investing activities -47
Financing activities (iii)
Issue of common stock 37
Cash dividend paid -30.1
Net cash flow from financing activities 6.9
Net increase in cash (i + ii + iii) -11.50
beginning cash 24
Ending cash 12.50

cash dividend paid = retained earnings, beginning + Net income - retained earning, ending

= 189 + 20 - 178.90

= $30.1

2.

Free cash flow = cash flow from operating activities - Cash dividend paid - Purchase of property, plant and equipment

= 28.6 - 30.1 - 47

= -$48.5

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