Question

Comparative financial statement data for Carmono Company follow:

	This Year			Last Year
Assets
Cash and cash equivalents	$	7.00		$	13.00
Accounts receivable		48.00			41.00
Inventory		90.00			76.60
Total current assets		145.00			130.60
Property, plant, and equipment		228.00			192.00
Less accumulated depreciation		44.80			33.60
Net property, plant, and equipment		183.20			158.40
Total assets	$	328.20		$	289.00
Liabilities and Stockholders’ Equity
Accounts payable	$	54.00		$	45.00
Common stock		114.00			88.00
Retained earnings		160.20			156.00
Total liabilities and stockholders’ equity	$	328.20		$	289.00

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

Sales	$	800.00
Cost of goods sold		480.00
Gross margin		320.00
Selling and administrative expenses		300.00
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

Carmono
Cash Flow Statement
Cash flow from Operating Activities
Net Income	20
Adjustments to reconcile Net Income to net cash flow from operating activities
Depreciation ( 44.8 - 33.6 )	11.2
Increase in Accounts Receivable	-7
INcrease in inventory	-13.4
Increase in accounts payable	9
Net Cash From Operating Activities	19.8
Cash flow from Investing Activities
Purchase Of equipment ( 228 - 192 )	-36
Net cash used by Investing Activities	-36
Cash flow from Financing Activities
Sale of Common stock	26	( 114 - 88 )
Payment of Cash Dividends	-15.8	( 156 + 20 - 160.2 )
Net cash used by Financing Activities	10.2
Net increase in cash	-6
Opening cash balance	13
Cosing cash Balance	7
Free cash flow = NCFOA - CAPEAX - Dividend paid
19.8 - 36 - 15.8 = -32