In: Accounting
Horse Heaven Farm began 20X6 with cash of 180,000. During the year, Horse Heaven earned service revenue of 600,000 and collected 480,000 from customers. Expenses for the year totaled 330,000, with 300,000 paid in cash to suppliers and employees. Horse heaven also paid 138,000 to purchase equipment and a cash dividend of 47,000 to shareholders. During 20X6, Horse Heaven borrowed 25,000 by issuing a note payable. Prepare the company's statement of cash flows for the year. Format operating activities by the direct method. Calculate Horse's free cash flow and cash realization ratio.
Horse Heaven Farm | ||
Statement of Cash Flows | ||
For the Year Ended December 31, 2017 | ||
Cash Flows from Operating Activities | ||
Cash receipts from customers | 480000 | |
Cash paid to suppliers and employees | -300000 | |
Net cash provided by operating activities | 180000 | |
Cash Flows from Investing Activities | ||
Purchase of equipment | -138000 | |
Net cash used by investing activities | -138000 | |
Cash Flows from Financing Activities | ||
Borrowing against note payable | 25000 | |
Payment of cash dividends | -47000 | |
Net cash used by financing activities | -22000 | |
Net increase in cash | 20000 | |
Cash balance at the beginning of 20X6 | 180000 | |
Cash balance at the end of 20X6 | 200000 |
Free cash flow = Cash flow from operations - Capital expenditures - Dividends = $180000 - $138000 = $42000
Cash realization ratio = Cash flow from operations/Net income = $180000/$270000 = 0.67
Net income = $600000 - $330000 = $270000