Question

Comparative financial statement data for Carmono Company follow:

	This Year			Last Year
Assets
Cash	$	8.50		$	16.00
Accounts receivable		54.00			47.00
Inventory		97.50			84.40
Total current assets		160.00			147.40
Property, plant, and equipment		237.00			198.00
Less accumulated depreciation		47.20			35.40
Net property, plant, and equipment		189.80			162.60
Total assets	$	349.80		$	310.00
Liabilities and Stockholders’ Equity
Accounts payable	$	58.50		$	48.00
Common stock		126.00			97.00
Retained earnings		165.30			165.00
Total liabilities and stockholders’ equity	$	349.80		$	310.00

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

Sales	$	950.00
Cost of goods sold		570.00
Gross margin		380.00
Selling and administrative expenses		360.00
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

1.

2. Free cash flow = Net cash provided by operating activities - Purchase of property, plant, and equipment

= $22.20 - $39

=- $16.8

Free cash flow for this year is -$16.8 (negative)