Question

Comparative financial statement data for Carmono Company follow:

	This Year			Last Year
Assets
Cash	$	8.50		$	16.00
Accounts receivable		54.00			47.00
Inventory		97.50			84.40
Total current assets		160.00			147.40
Property, plant, and equipment		237.00			198.00
Less accumulated depreciation		47.20			35.40
Net property, plant, and equipment		189.80			162.60
Total assets	$	349.80		$	310.00
Liabilities and Stockholders’ Equity
Accounts payable	$	58.50		$	48.00
Common stock		126.00			97.00
Retained earnings		165.30			165.00
Total liabilities and stockholders’ equity	$	349.80		$	310.00

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

Sales	$	950.00
Cost of goods sold		570.00
Gross margin		380.00
Selling and administrative expenses		360.00
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.

• Required 1
• Required 2

Using the indirect method, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts. Round your intermediate calculations and final answers to 2 decimal places.)

Carmono Company Statement of Cash Flows For This Year Ended December 31 Operating activities: Net incomeselected answer correct not attempted Adjustments to convert contribution margin to a cash basis:selected answer incorrect Depreciationselected answer correct not attempted Increase in accounts receivableselected answer correct not attempted Increase in inventoryselected answer correct not attempted Increase in accounts payableselected answer correct not attempted not attempted not attempted 0.00 Net cash provided by investing activitiesselected answer incorrect 0.00 Investing activities: Cash dividendsselected answer incorrect not attempted not attempted not attempted not attempted 0.00 Financing activities: Cash dividendsselected answer correct not attempted not attempted not attempted not attempted not attempted not attempted 0.00 not attempted 0.00 Beginning cash and cash equivalents not attempted Ending cash and cash equivalents $0.00

• Required 2

Compute Carmono’s free cash flow for this year. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.)

	Free cash flow not attempted

Answer 1

Answer-1)-

CARMONO COMPANY
STATEMENT OF CASH FLOWS (USING INDIRECT METHOD)
FOR THE YEAR ENDED DECEMBER 31
Particulars		Amount
		$
Cash flow from operating activities
Net Income		20
Adjustments to reconcile net income to net cash provided by operating activities
Adjustment for non cash effects
Depreciation expense	($47.20-$35.40)	11.8
Change in operating assets & liabilities
Increase in Accounts receivable		-7
Increase in merchandise inventory		-13.1
Increase in accounts payable		10.5
Net cash flow from operating activities (a)		22.2
Cash Flow from Investing activities
Property,plant & equipment purchased	($237-$198)	-39
Net cash Flow from Investing activities (b)		-39
Cash Flow from Financing activities
Cash dividends paid	($165+$20-$165.30)	-19.7
Common stock issued		29
Net cash Flow from Financing activities (c)		9.3
Net Change in cash c=a+b+c		-7.5
Beginning cash balance		16
Closing cash balance		8.5

Answer-2)- Free cash flow = Net cash provided by operating activities- Capital expenditure-Cash dividends paid

= $22.2-$39-$19.7

= $(36.5)