Horse Heaven Farm began 20X6 with cash of 180,000. During the year, Horse Heaven earned service...

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.

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Expert Solution

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

ekkarill92 answered 1 year ago

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