Question

The following are the financial statements of Novak Corp..

Novak Corp. Comparative Balance Sheets December 31
Assets		2020			2019
Cash		$36,300			$19,300
Accounts receivable		32,200			20,000
Inventory		30,300			20,400
Equipment		59,600			77,900
Accumulated depreciation—equipment		(29,800	)		(23,400	)
Total		$128,600			$114,200
Liabilities and Stockholders’ Equity
Accounts payable		$28,200			$16,700
Income taxes payable		7,500			8,400
Bonds payable		26,300			33,200
Common stock		17,200			14,200
Retained earnings		49,400			41,700
Total		$128,600			$114,200

Novak Corp. Income Statement For the Year Ended December 31, 2020
Sales revenue		$241,700
Cost of goods sold		175,300
Gross profit		66,400
Operating expenses		24,600
Income from operations		41,800
Interest expense		2,000
Income before income taxes		39,800
Income tax expense		7,700
Net income		$32,100

Additional data:

1.		Dividends declared and paid were $24,400.
2.		During the year, equipment was sold for $9,800 cash. This equipment cost $18,300 originally and had a book value of $9,800 at the time of sale.
3.		All depreciation expense, $14,900, is in the operating expenses.
4.		All sales and purchases are on account.

Compute free cash flow.

Free cash flow

$

Answer 1

Free Cash Flow = $ 35,500

Free Cash Flow = Net Cash flows from operating Activity - Capital Expensditure = $ 35,500 - $ 0 =$ 35,500

Working:

Statement of Cash Flows (Indirect Method)
For the Current Year Ended December 31
Cash flows from operating activities:
Net Income	$            32,100
Adjustments to reconcile to operating cash flow
Depreciation expense	$            14,900
Changes in operating assets and liabilities:
Increase in Account Receivables [32200-20000]	$         (12,200)
Increase in Inventory [30300-20400]	$            (9,900)
Increase in accounts payable [28200-16700]	$            11,500
Decrease in income taxes payable [7500-8400]	$               (900)
Net cash flows from operating activities		$              35,500