Question

Problem 17-7A The following are the financial statements of Nosker Company. NOSKER COMPANY Comparative Balance Sheets December 31 Assets 2017 2016 Cash $35,900 $19,550 Accounts receivable 32,850 19,100 Inventory 26,600 20,200 Equipment 59,500 77,600 Accumulated depreciation—equipment (29,500 ) (23,000 ) Total $125,350 $113,450 Liabilities and Stockholders’ Equity Accounts payable $28,750 $ 16,950 Income taxes payable 7,400 8,100 Bonds payable 28,000 32,750 Common stock 17,050 14,100 Retained earnings 44,150 41,550 Total $125,350 $113,450 NOSKER COMPANY Income Statement For the Year Ended December 31, 2017 Sales revenue $242,250 Cost of goods sold 175,600 Gross profit 66,650 Operating expenses 23,750 Income from operations 42,900 Interest expense 3,650 Income before income taxes 39,250 Income tax expense 7,900 Net income $31,350 Additional data: 1. Dividends declared and paid were $28,750. 2. During the year equipment was sold for $8,250 cash. This equipment cost $18,100 originally and had accumulated depreciation of $9,850 at the time of sale. 3. All depreciation expense, $16,350, is in the operating expenses. 4. All sales and purchases are on account. What is the Free Cash Flow?

Answer 1

1

NOSKER COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash flows from operating activities
Net income		$31,350
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation expense	$16,350
Increase in accounts payable	11,800
Decrease in income taxes payable	(700)
Increase in inventory	(6,400)
Increase in accounts receivable	(13,750)	7,300
Net cash provided by operating activities		38,650
Cash flows from investing activities
Sale of equipment		8,250
Cash flows from financing activities
Issuance of common stock	2,950
Redemption of bonds	(4,750)
Payment of dividends	(28,750)
Net cash used by financing activities		(30,550)
Net increase in cash		16,350
Cash at beginning of period		19,550
Cash at end of period		$35,900

2

Compute free cash flow.

=$38,650 - $0 - $28750

= $9,900

free cash flow =$9,900