Question

Problem 12-07A Presented below are the financial statements of Novak Company Novak Company Comparative Balance Sheets December 31 Assets 2022 Cash $ 112,000 Accounts receivable 64,000 Inventory 89,600 Property, plant, and equipment 192,000 Accumulated depreciation (102,400 ) Total $355,200 2021 $ 64,000 44,800 64,000 249,600 (76,800 ) $345,600 Liabilities and Stockholders' Equity Accounts payable Income taxes payable Bonds payable Common stock Retained earnings Total $ 60,800 22,400 54,400 57,600 160,000 $355,200 $ 48,000 25,600 105,600 44,800 121,600 $345,600 $774,400 560,000 214,400 Novak Company Income Statement For the Year Ended December 31, 2022 Sales revenue Cost of goods sold Gross profit Selling expenses $57,600 Administrative expenses 19,200 Income from operations Interest expense Income before income taxes 76,800 137,600 9.600 128,000 25,600 $ 102,400 Income tax expense Net income Additional data: 1. Depreciation expense was $56,000. 2. Dividends declared and paid were $64,000. 3. During the year equipment was sold for $27,200 cash. This equipment cost $57,600 originally and had accumulated depreciation of $30,400 at the time of sale.

Answer 1

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Novak Company	Amount $		Novak Company
Cash Received from customers			Cash Flow Direct Method	Amount $	Amount $
Opening Accounts Receivable	44,800.00		Cash flow from operating activities
Add: Sales	774,400.00		Cash Received from customers		755,200.00
Less: Closing Accounts Receivable	64,000.00		Less: Cash Payments
Cash Received from customers	755,200.00		For Operating Expense	20,800.00
			To suppliers	572,800.00
Inventory purchased			For Income Taxes	28,800.00
Cost of goods sold	560,000.00		For Interest	9,600.00
Add: Closing Inventory	89,600.00				632,000.00
Less: Opening Inventory	64,000.00		Net Cash provided by operating activities		123,200.00
Inventory purchased	585,600.00
			Cash Flow from Investing Activities
Cash paid to suppliers			Sale of Equipment		27,200.00
Opening Accounts Payable	48,000.00
Add: Purchases	585,600.00		Cash Flow from Financing Activities
Less: Closing Accounts Payable	60,800.00		Issuance of Common Stock	12,800.00
Cash paid to suppliers	572,800.00		Redemption of bonds	(51,200.00)
			Payment of dividends	(64,000.00)
Cash paid for operating expenses			Net Cash used by Financing Activities		(102,400.00)
Operating expenses	76,800.00
Less: depreciation	56,000.00		Net Increase in cash		48,000.00
Cash paid for Other operating expenses	20,800.00		Add: Beginning Cash Balance		64,000.00
			Ending cash Balance		112,000.00
Income Taxes paid
Income Taxes expense	25,600.00
Add: Opening Income Tax Payable	25,600.00
Less: Closing Income Tax Payable	22,400.00
Income Taxes paid	28,800.00
Redemption of bonds
Closing Balance	54,400.00
Less: Opening Balance	105,600.00
Redemption of bonds	(51,200.00)
Issuance of Common Stock
Closing Balance	57,600.00
Less: Opening Balance	44,800.00
Issuance of Common Stock	12,800.00

Free Cash Flow=	EBIT - Taxes + Depreciation & Amortization - Capex – Change in Working Capital
Calculation of changes in working capital	2022	2021
Cash	112,000.00	64,000.00
Accounts Receivable	64,000.00	44,800.00
Inventory	89,600.00	64,000.00
Total current assets	265,600.00	172,800.00
Accounts Payable	60,800.00	48,000.00
Income tax Payable	22,400.00	25,600.00
Total current Liabilities	83,200.00	73,600.00
Working capital	182,400.00	99,200.00
Changes in working capital	83,200.00
Free Cash Flow
EBIT	137,600.00
Less: Taxes	25,600.00
Add: Depreciation & Amortization	56,000.00
Less: Capex	-
Less: Changes in working capital	83,200.00
Free Cash Flow	84,800.00