Question

The following are the financial statements of Nosker Company.

   Nosker Company

   Comparative Balance Sheet

   December 31,

Assets 2017 2016

Cash $ 38,000. $ 20,000

Accounts receivable 30,000 14,000

Inventory 27,000 20,000

Equipment 60,000 78,000

Accumulated depreciation- equipment (29,000) (24,000)

Total $126,000 $108,000

Liabilities and Stockholders' Equity

Accounts payable $ 24,000 $ 15,000

Income taxes payable 7,000 8,000

Bonds payable 27,000 33,000

Common stock 18,000    14,000

Retained earnings 50,000 38,000

Total $126,000. $ 108,000

NOSKER COMPANY

INCOME STATEMENT

For the year Ended December 31, 2017

Sales revenue $242,000

Cost of goods sold 175,000

Gross Profit 67,000

Operating expenses 24,000

Income from operations 43,000

Interest expense. 3,000

Income before income taxes 40,000

Income tax expense 8,000

Net Income $32,000

Additional data:

1. Dividends declared and paid were $20,000

2. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had a book value of $8,500 at the time of sale.

3. All depreciation expense, $14,500, is the operating expenses.

4. All sales and purchases are on account.

(a) Prepare a statement of cash flows using the indirect method.

(b) Compute free cash flow.

Answer 1

a.

NOSKER COMPANY Statement of Cash Flow - Indirect Method For The Year Ended December 31, 2017
Cash flow from operating activities:
Net income		$32,000
Adjustments:
Depreciation expense	$14,500
Increase in accounts receivable	(16,000)
Increase in inventory	(7,000)
Increase in accounts payable	9,000
Decrease in income tax payable	(1,000)	(500)
Net cash flow from operating activities		31,500
Cash flow from investing activities:
Proceeds from sale of equipment	8,500
Net cash flow from investing activities		8,500
Cash flow from financing activities:
Redemption of bonds payable	(6,000)
Issue of common stock	4,000
Dividend paid	(20,000)
Net cash flow from financing activities		(22,000)
Net increase (decrease) in cash		18,000
Beginning cash balance		20,000
Ending cash balance		$38,000

b. Free cash flow = Operating cash flow - Dividend

Free cash flow = $31,500 - 20,000 = $11,500