Question

Ch12 exerc #5

Comparative financial statement data for Carmono Company follow:

	This Year		Last Year
Assets
Cash	$	3	$	6
Accounts receivable		22		24
Inventory		50		40
Total current assets		75		70
Property, plant, and equipment		240		200
Less accumulated depreciation		65		50
Net property, plant, and equipment		175		150
Total assets	$	250	$	220
Liabilities and Stockholders’ Equity
Accounts payable	$	40	$	36
Common stock		150		145
Retained earnings		60		39
Total liabilities and stockholders’ equity	$	250	$	220

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

Sales	$	275
Cost of goods sold		150
Gross margin		125
Selling and administrative expenses		90
Net income	$	35

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:
a.	Using the indirect method, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

	Carmono Company Statement of Cash Flows - Indirect Method For This Year Ended December 31 Operating activities: Adjustments to convert net income to a cash basis: Investing activities: Financing activities: Beginning cash and cash equivalents Ending cash and cash equivalents

b

.	Compute Carmono’s free cash flow for this year. (Negative amount should be indicated by a minus sign.)

Answer 1

Answer:-

Carmono Company
Statement of Cash Flow (Using Indirect Method)
For the year ended, December 31
Particulars	Amount
	$
Cash flow from opreating activities
Net Income	35
Adjustments to reconcile net income to net cash provided by opreating activities
Adjustment for non cash effects
Depreciation	15
Change in opreating assets & liabilities
Decrease in accounts receivable	2
Increase in inventory	-10
Increase in accounts payable	4
Net cash flow from opreating activities (a)	46
Cash Flow from Financing activities
Dividend paid	-14
Common stock issued	5
Net cash Flow from Financing activities (b)	-9
Cash Flow from Investing activities
Equipment purchased	-40
Net cash Flow from Investing activities (c)	-40
Net Channge in cash c=a+b+c	-3
Beginning cash balance	6
Closing cash balance	3