Question

In: Accounting

Comparative financial statement data for Carmono Company follow: This Year Last Year Assets Cash and cash...

Comparative financial statement data for Carmono Company follow:

This Year Last Year
Assets
Cash and cash equivalents $ 18.00 $ 35.00
Accounts receivable 92.00 85.00
Inventory 145.00 133.80
Total current assets 255.00 253.80
Property, plant, and equipment 294.00 236.00
Less accumulated depreciation 62.40 46.80
Net property, plant, and equipment 231.60 189.20
Total assets $ 486.60 $ 443.00
Liabilities and Stockholders’ Equity
Accounts payable $ 87.00 $ 67.00
Common stock 202.00 154.00
Retained earnings 197.60 222.00
Total liabilities and stockholders’ equity $ 486.60 $ 443.00

For this year, the company reported net income as follows:

Sales $ 1,900.00
Cost of goods sold 1,140.00
Gross margin 760.00
Selling and administrative expenses 740.00
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.

Solutions

Expert Solution

Carmono Company
Statement of Cash Flow
for the year ended ........
PARTICULARS AMOUNT($) AMOUNT($)
Operating Activities:
Net Income $20.00
Adjustment of Non Cash Expenses and Non Operating Income

Depreciation expenses during the year

{$62.40 - $46.80}

$15.60
Net cash flow before working Capital Changes $35.60
Add: Increase in Current Liabilities / Decrease in Current Assets
Increase in Accounts Payable $20.00
Less : Decrease in Current Liabilites / Increases in Current Assets

Increase in Accounts Receivables

($7.00)
Increase in Inventory ($11.20)
Cash Provided by Operating Activities $37.40
Investing Activities:
Purchase of Plant, Property and Equipment ($58.00)
Cash Flow Used in Financing Activities ($58.00)

Financing Activities:

Proceeds from Common Stock $48.00
Cash Dividend Paid {WN-1} ($44.40)
Cash Provided by Financing Activities $3.60
Net Cash Increase / (Decrease) ($17.00)

ADD: Beginning Balance of Cash and cash Equivalence

$35.00
Closing Balance of Cash and Cash Equivalence $18.00

Working Note 1 :

Computation of Cash Dividend paid during the year20

Particulars Amount[$]
Opening Balance of Retained Earning $222.00
ADD: Net Income during the year $20.00
Less: Closing Balance of Retained Earning ($197.60)
Cash Dividend Paid during the year $44.40

2.Computation of Free Cash Flow

Net Cash Provided by Operating Activities $37.40
Less : Purchase of Plant, Property and equipment ($58.00)
Less : Cash Dividend Paid ($44.40)
Free Cash Flow ($65.00)

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