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Rojas Corporation’s comparative balance sheets are presented below.

Rojas Corporation’s comparative balance sheets are presented below.

ROJAS CORPORATION Comparative Balance Sheets December 31 2017 2016 Cash $ 14,300 $ 10,700 Accounts receivable 21,200 20,000 70,000 (15,000) 23,400 26,000 Land Buildings Accumulated depreciation-buildings 70,000 (10,000) Total $110,500 $120,100 Accounts payable Common stock $ 12,370 $ 31,100 75,000 23,130 69,000 20,000 Retained earnings Total $110,500 $120,100

 

Additional information:

1. Net income was $22,630. Dividends declared and paid were $19,500.

2. No noncash investing and financing activities occurred during 2017.

3. The land was sold for cash of $4,900.

 

Instructions

(a) Prepare a statement of cash flows for 2017 using the indirect method.

(b) Compute free cash flow.

Solutions

Expert Solution

Calculate the cash flow from operating activities under the indirect method as shown below:

 

Therefore, the cash flow from operating activities is $12,200.

 

Explanation:

Cash flow from operating activities is calculated by adding the non-cash expenses (depreciation & loss on sale of land), decrease in current assets (accounts receivable) and reducing the decrease in the current liabilities (accounts payable).

 

Prepare the cash flow statement as shown below:

 

The net cash flow during the period is $3,600.

 

Explanation

The sum of cash flow from all the three activities i.e. cash flow from operating, investing and financing activities results in the increase or decrease of the cash during the period. Therefore, there is an increase in the cash during the period by the sum of cash flow from all three activities.

 

The net cash flow during the period is $3,600.

Therefore, the cash flow from operating activities is $12,200.

 

Junaid answered 2 years ago
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