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.

CARMONO COMPANY
Cash flow statement
For the year ended			Working
Cash flow from operating activities
Net income		$   20.00
Adjustment to reconcile net income to:
Depreciation expense	$   11.80		$47.20 - $35.40
Changes in current operating assets and liabilities
Increase in accounts receivable	$   (7.00)
Increase in inventory	$ (13.10)
Increase in accounts payable	$   10.50
		$      2.20
Net cash provided by operating activities		$   22.20
Cash flow from investing activities
Cash paid to acquire property, plant and equipment	$ (39.00)
Net cash used by investing activities		$ (39.00)
Cash flow from financing activities
Proceeds from issue of common stock	$   29.00
Cash dividend paid	$ (19.70)		$165.3 - $20 - $165
Net cash provided by financing activities		$      9.30
Net increase in cash and cash equivalents		$   (7.50)
Cash and cash equivalents at beginning of period		$   16.00
Cash and cash equivalents at end of period		$      8.50

2.

Net cash provided by operating activities		$   22.20
Less: Capital expenditure
Cash paid to acquire property, plant and equipment	$ (39.00)
Cash dividend paid	$ (19.70)
Total capital expenditure		$ (58.70)
Free cashflow		$ (36.50)