Question

Northern Illinois Manufacturing prepared the balance sheet and income statement for this year. Now the company needs to prepare its statement of cash flows. The comparative balance sheets for Northern Illinois Manufacturing for this year and last year and the income statement for this year are presented below. (Note: Work in Process is a current asset and should be treated as any other current asset.

Additional information:

1. Norther Illinois Manufacturing sold a piece of company equipment for $30,000. The equipment had been used for six years. It had cost $100,000 when purchases and had a 10-years life and a $10,000 salvage value. Straight-line depreciation was used.

2. Northern Illinois manufacturing purchased new equipment costing $200,000.

3. The company paid $100,000 in dividends.

Northern Illinois Manufacturing
Income Statement
For the year ending December 31
Sales			$5,536,077
Less: Cost of goods sold			3,132,777
Gross Profit			2,403,300
Operating expenses:
Advertising		$52,000
Insurance		382,000
Salaries and wages		594,650
Depreciation		72,500
Other op. expenses		30,500
Total op. expenses			1,131,650
Income from operations			1,271,650
Other income
Loss on sale of equip		(16,000)
Other expenses
Interest expense		(12,200)
Net other income and expenses			(28,200)
Income before income tax			1,243,450
Income tax expenses			373,035
Net income			$870,415

Northern Illinois Manufacturing
Balance Sheet
December 31
Assets			This Year	Last Year
Current assets
Cash			$792,306	$746,681
Accounts receivable			680,750	542,685
Work in process			680,450	0
Inventory			16,750	7,500
Prepaid expenses			71,500	42,590
Total current assets			2,241,756	1,339,456
Property, plant, and equipment
Furnishings			40,416	40,416
Equipment			900,200	800,200
Buildings			450,000	450,000
Land			300,000	300,000
Accumulated depreciation			(503,704)	(485,204)
Total property, plant, and equipment			1,186,912	1,105,412
Total Assets			$3,428,668	$2,444,868
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable			$156,300	$128,360
Income taxes payable			100,344	79,989
Wages payable			600	1,984
Interest payable			1,200	0
Other current liabilities			14,520	15,246
Revolving bank loan payable			16,000	0
Total current liabilities			288,964	225,579
Long-term liabilities
Notes payable			150,000	0
Total liabilities			438,964	225,579
Stockholders' equity
Common stock			1,250,000	1,250,000
Retained earnings			1,739,704	969,289
Total stockholders' equity			2,989,704	2,219,289
Total liabilities and stockholders' equity			$3,428,668	$2,444,868

Instructions:

This assignment must be completed in an Excel spreadsheet and include the following:

a. Prepare a statement of cash flows using the indirect method for this year.

b. Determine free cash flow.

Answer 1