Question

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1. MIGITSU COMPANY Comparative Balance Sheets December 31 Cash $72,000 $21,000 Accounts receivable 87,000 77,000 Inventories...

1. MIGITSU COMPANY
Comparative Balance Sheets
December 31

Cash $72,000 $21,000
Accounts receivable 87,000 77,000
Inventories 168,000 190,000
Land 70,000 99,000
Equipment 262,000 202,000
Accumulated depreciation (66,000) (34,000)
   Total $593,000 $555,000
Liabilities and Stockholders’ Equity
Accounts payable $35,000 $45,000
Bonds payable 151,000 208,000
Common stock ($1 par) 218,000 176,000
Retained earnings 189,000 126,000
   Total $593,000 $555,000

Additional information:
1. Net income for 2020 was $97,000.

2. Cash dividends of $34,000 were declared and paid.

3. Bonds payable amounting to $57,000 were redeemed for cash $57,000.

4. Common stock was issued for $42,000 cash.

5. Equipment that cost $45,000 and had a book value of $27,000 was sold for $35,000 during 2020; land was sold at cost.

PART A. Prepare a statement of cash flows for 2020 using the indirect method.

PART B. Compute free cash flow

2.

2020 2019

Cash   $14,900   $10,400

Accounts receivable.   21,500.   23,400

Land.      19,700   25,900

Buildings 70,100   70,100

Accumulated depreciation—buildings. (14,800) (10,700)

   Total $111,400 $119,100

Accounts payable $12,100   $28,300

Common stock   75,400   73,600

Retained earnings 23,900   17,200

Total $111,400   $119,100

Additional information:

1. Net income was $22,400. Dividends declared and paid were $15,700

2. No noncash investing and financing activities occurred during 2020.

3. The land was sold for cash of $4,900.

PART A.) Prepare a statement of cash flows for 2020 using the indirect method.

PART B.) Compute free cash flow

Solutions

Expert Solution

Q1.
Cash Flow Statement
Cash flows from Operating activities
Net Income for the year 97000
Adjustment required for reconciliation
Gain on sale of equipment -8000
Depreciation expense 50000
Increase in Accounts receivable -10000
Decrease in Inventories 22000
Decrease in Accounts payable -10000
Net cash provided from Operating activities 141000
Cashflows from Investing activities
Sale of Equipment 35000
Purchase of Equipment (202000-45000-262000) -105000
Sale of Land 29000
Net cash usd in Investing activities -41000
Cash flows from Financing activities
Redemption of bonds payable -57000
Issuance of common stock 42000
Dividend paid -34000
Net cash used in financing activities -49000
Net increase in cash 51000
Beginning balance of cash 21000
Ending balance of cash 72000
Free cash flows
Net cash provided from Operating activities 141000
Less: Net capital expenditure (105000-35000) 70000
Free cash flows 71000
Q2.
Cash Flow Statement
Cash flows from Operating activities
Net Income for the year 22400
Adjustment required for reconciliation
Loss on sale of land (25900-19700-4900) 1300
Depreciation expense 4100
Decrease in Accounts receivable 1900
Decrease in Accounts payable -16200
Net cash provided from Operating activities 13500
Cashflows from Investing activities
Sale of Land 4900
Net cash provided from Invsting activities 4900
Cash flows from Financing activities
Dividend paid -15700
Common stock issued 1800
Net cash used in financing activities -13900
Net increase in cash 4500
Beginning balance of cash 10400
Ending balance of cash 14900
Free cash flows:
Net cash provided from Operating activities 13500
less: Capital expenditure 0
Free cash flows: 13500

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