Question

Rowan Company Comparative Balance Sheet (dollars in millions)
	Ending Balance	Beginning Balance
Assets
Current assets:
?Cash and cash equivalents	$70	$91
?Accounts receivable	536	572
?Inventory	??620	??580
Total current assets	?1,226	?1,243
Property, plant, and equipment	1,719	1,656
?Less accumulated depreciation	??640	??480
Net property, plant, and equipment	?1,079	?1,176
Total assets	$2,305	$2,419
Liabilities and Stockholders’ Equity
Current liabilities:
?Accounts payable	$205	$180
?Accrued liabilities	94	105
?Income taxes payable	???72	???88
Total current liabilities	371	373
Bonds payable	??180	??310
Total liabilities	??551	??683
Stockholders’ equity:
?Common stock	800	800
?Retained earnings	??954	??936
Total stockholders’ equity	?1,754	?1,736
Total liabilities and stockholders’ equity	$2,305	$2,419

Rowan Company Income Statement For the Year Ended December 31 (dollars in millions)
Sales	$4,350
Cost of goods sold	?3,470
Gross margin	880
Selling and administrative expenses	??820
Net operating income	60
Nonoperating items: Gain on sale of equipment	??4
Income before taxes	64
Income taxes	??22
Net income	?$42

Rowan also provided the following information:

-The company sold equipment that had an original cost of $16 million and accumulated depreciation of $9 million. The cash proceeds from the sale were $11 million. The gain on the sale was $4 million.

-The company did not issue any new bonds during the year.

-The company paid a cash dividend during the year.

-The company did not complete any common stock transactions during the year.

Question:

Using the indirect method, prepare a statement of cash flows for the year. Calculate the free cash flow for the year.

Answer 1