Question

Comparative financial statement data for Carmono Company follow: This Year Last Year Assets Cash and cash equivalents $ 5.50 $ 10.00 Accounts receivable 42.00 35.00 Inventory 82.50 68.80 Total current assets 130.00 113.80 Property, plant, and equipment 219.00 186.00 Less accumulated depreciation 42.40 31.80 Net property, plant, and equipment 176.60 154.20 Total assets $ 306.60 $ 268.00 Liabilities and Stockholders’ Equity Accounts payable $ 49.50 $ 42.00 Common stock 102.00 79.00 Retained earnings 155.10 147.00 Total liabilities and stockholders’ equity $ 306.60 $ 268.00 For this year, the company reported net income as follows: Sales $ 650.00 Cost of goods sold 390.00 Gross margin 260.00 Selling and administrative expenses 240.00 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.

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	($42.40-$31.80)	10.6
Change in operating assets & liabilities
Increase in Accounts receivable		-7
Increase in merchandise inventory		-13.7
Increase in accounts payable		7.5
Net cash flow from operating activities (a)		17.4
Cash Flow from Investing activities
Property,plant & equipment purchased	($219-186)	-33
Net cash Flow from Investing activities (b)		-33
Cash Flow from Financing activities
Cash dividends paid	($147+$20-$155.10)	-11.9
Common stock issued		23
Net cash Flow from Financing activities (c)		11.1
Net Change in cash c=a+b+c		-4.5
Beginning cash balance		10
Closing cash balance		5.5

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

= $17.4-$33-$11.9

= $(27.5)