Question

The Company has an unmatched pharmaceutical supply chain and procurement expertise, offering customers innovative solutions and optimal efficiencies a portfolio of retail and business brands, including Walgreens, Duane Reade, Boots and Alliance Healthcare, as well as increasingly global health and beauty product brands, such as No7, Soap & Glory, Liz Earle, Sleek MakeUP and Botanics diversified and robust profit pools across the U.S., Europe and key emerging markets a unique platform for growth in developed and emerging markets. Due to its expansion, Walgreens was able to declare and pay cash dividends in 2018 for $55.000, as well as redeem $10.000 worth of bonds at their face value for cash and convert $30.000 into common stock. The company, looking out for the best interest of its cash flow and patrimony, issued $130.000 worth or common stock ($1 par) By leveraging these advantages and opportunities, as well as the full benefit of their best practices and expertise, they decided to open new stores in Asia. To do that, the company sold a piece of land at it book value for cash. Afterwards equipment was bought with a cost of $166,000 for cash. Equipment with a cost of $41,000 and a book value of $36,000 was also sold for $34,000 cash. During 2018, operating expenses include depreciation expense of $33,000 and charges from prepaid expenses of $2,000. Also interest expense of $12,000 was paid in cash and an account payable was generated pertain to merchandise suppliers.

INSTRUCTIONS
A. Prepare a Statement of Cash Flows
B. Determine the Free Cash Flow

Answer 1

Statement of cash flows has been specified as per indirect method since nothing is specified in the question

T Accounts have been prepared to help understand the concept better

Working notes: Equipment opening balance $68,000 Accumulated Dep Bank (balance paid) $166,000 Bank P and L Account closing balance $234,000 $5,000 $34,000 $2,000 $193,000 $234,000 $10,000 $23,000 WALGREENS Cash Flow Statement under Indirect method Cash flows from Operating Activities Amount Net Income $125,000 Add: Adjustments to reconcile net income to Depreciation $33,000 Loss on sale of Equipment $2,000 Changes in Working Capital Increase in Accounts Receivable ($42,000) Increase in Inventory ($54,000) Decrease in prepaid expense $2,000 Decrease in Accounts payable ($17,000) Increase in Accrued expense payable $10,000 Net Cash provided by Operating Activities $59,000 Cash flows from Investing Activities Sale of Land $25,000 Purchase of Equipment ($166,000) Sale of Equipment $34,000 Net Cash used by Investing Activities ($107,000) Cash flows from Financing Activities Repayment of Bonds ($10,000) Issue of common stock $130,000 Dividend paid ($55,000) Net Cash provided by Financing Activities $65,000 Net Cash inflow/outflow) $17,000 Opening balance of cash $37,000 Closing balance of cash $54,000 Accumulated Depreciation- Equipment Equipment $5,000 Opening Balance (Dep on Equip sold) P and L Account Closing balance $28,000 (Depreciation during the year) $33,000 $33,000 Significant non cash transaction Non Cash Financing Activity Bonds worth $30,000 converted to Common stock during the year B Free cash flows Cash flow from Operating activities Purchase of Equipment Free cash flows $59,000 ($166,000) ($107,000)