Question

Darwin Company, a manufacturer, has provided the following information pertaining to its assets and liabilities:

	12/31/2018	12/31/2019
Account receivable	$10,000	$4,000
Inventory	$11,000	$12,000
Prepaid insurance	$4,000	$7,000
Wage payable	$3,000	$4,000
Unearned revenue	$4,000	$2,000

In addition, Darwin also reported that its net income in 2019 was $10,000 and the depreciation expense in 2019 was $5,000.

(1) How much was Darwin’s cash flow from operating activities in 2019? (8 points)

Suppose Darwin Company has also provided the following information pertaining to its cash flows from investing and financing activities in 2019:

Cash flows from investing activities
Purchase of property, plant and equipment	(5,000)
Cash flows from financing activities
Proceeds from issuance of stock	3,000
Payment of cash dividends	(2,000)

(2) How much was Darwin’s free cash flow in 2019? (4 points)

Answer 1

Cash Flow Statement

Particulars	Amount (In $)
Cash Flow from Operating Activities:
Net Income	10,000
Depreciation expense	5,000
Decrease in Accounts receivable	6,000
Increase in wages payable	1,000
Increase in Inventory	(1,000)
Increase in Prepaid Insurance	(3,000)
Decrease in Unearned revenue	(2,000)
Net Cash flow from Operating Activities (A)	16,000
Cash Flow from Investing Activities:
Purchase of property, plant and equipment	(5,000)
Net Cash flow from Investing Activities (B)	(5,000)
Cash Flow from Financing Activities:
Proceeds from issuance of stock	3,000
Payment of cash dividends	(2,000)
Net Cash flow from Financing Activities (B)	1,000
Net Cash flow (A) + (B) + (C )	12,000

Answer 1)

Cash flow from operating activities is $ 16,000

Answer 2)

Free cash flow in the year 2019 is $ 12,000