Question

Comparative financial statement data for Carmono Company follow: This Year Last Year Assets Cash $ 13.00 $ 25.00 Accounts receivable 72.00 65.00 Inventory 120.00 107.80 Total current assets 205.00 197.80 Property, plant, and equipment 264.00 216.00 Less accumulated depreciation 54.40 40.80 Net property, plant, and equipment 209.60 175.20 Total assets $ 414.60 $ 373.00 Liabilities and Stockholders’ Equity Accounts payable $ 72.00 $ 57.00 Common stock 162.00 124.00 Retained earnings 180.60 192.00 Total liabilities and stockholders’ equity $ 414.60 $ 373.00 For this year, the company reported net income as follows: Sales $ 1,400.00 Cost of goods sold 840.00 Gross margin 560.00 Selling and administrative expenses 540.00 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

Coputation of cash flow
Particulars			Amount
Net income			20
increase in accounts payable			15
Depreciation			13.6
increase in accounts receviable			-7
increase in inventory			-12.2
cash flow from operating activity			29.4
Cash flow from investing activity
purchase of equipment			-48
Cash flow from investing activity			-48
Cash flow from financing activity
issue of common stock			38
dividend paid			-31.4
cash flow form financing activity			6.6
net increase and decerease in cash			-12
opening cash			25
closing cash			13
2) Free Cash flow = cash flow from operating activity-capital expenditure
free cash flow = 29.40-48 =      -18.60