Question

Cash flows case: (indirect method). Ronaldo Company has not yet prepared the statement of cash flows. The Balance sheet as of December 31, 2018 and January 1, 2018 and the additional information regarding the statement of income and retained earnings for the year are presented below.

12/31/2018 1/1/2018 Assets Current Assets: Cash Account Receivables Inventory Total Current Assets Property, Plant, and Equipment Less Accumulated Depreciation Net Property, Plant, and Equipment Total Assets $ 158 1,160 1.230 2,548 $ 98 1,290 1,320 2,708 3,030 1.530 1,500 $4,208 2,932 1.282 1,650 $4,198 $310 $500 380 330 140 152 $780 Liability and Equity Current Liability: Account payable Accrued Liability Income tax payable Total current Liability Bonds payable Total Liability Stockholders' Equity: Common Stock Retained earnings Total Stockholders' Equity Total Liability and Stockholders' Equity $1,032 900 __1,240 1,932 2,020 322 1,954 2,276 $4,208 322 1,856 2,178 $4,208

Ronaldo also provided the following information:

1. The company sold equipment that had an original cost of $26 million and accumulated depreciation of $16 million. The cash proceeds from the sale were $16 million. The gain on the sale was $6 million

2. The company did not issue any bonds during the year.

3. The company paid a cash dividend during the year

4. The company did not complete any common stock transactions during the year

Required:

1. Prepare a statement of cash flows for the year using the indirect method

2. Compute Ronaldo's free cash flow

3. Assume that Ronaldo has sales of $7,600, Net income of $230, and net cash provided by operating activities of $300 in the prior year. Prepare a memo that summarizes your interpretations of Ronaldo's financial performance

4. Use the analysis of Ronaldo Company to illustrate how information in the balance sheet and the statement of cash flows helps the users of the financial statements.

Answer 1

1) Cash flow statement:
From operating activities:			calculation:
	Amount $
Net Income	230
Less:Gain on sale of equip	-6
Add:Depreciation exp.	264		(1530-1282+16)
Less:increase in AR	-130
Less:increase in Inv.	-90		PPE:
add:increase in AP	190		DR.	CR.
Add:increase in AL	50		2932	26
add:increase in ITP	12		124	3030	(PURCHASES)
Net cash inflow from Op. Activities	520		3056	3056
From investing activities:			Dep. On PPE:
add:sale of equip	16		DR.	CR.
less:purchase of PPE	-124		16	1282
Net cash outflow from investing act.	-108		1530	264	(DEPRECIATION)
			1546	1546
From financing activities:
less:payment of BP	-340
less:cash dividend paid	-132		(1856+230-1954)
Net cash outflow of financing act.	-472
Net cash outflow of all activities	-60
Add:opening cash	158
Closing cash	98
2) Free cash flow:	Amount $
Net Income	230
add: Depreciation	264
add:Sale of equipment	16
less: Purchase of PPE	-124
Free Cash Flow	386
3) Interpretations of the last year's and this year's :
Last year over sales to this year = 7600-7200=$400
Last year over net income to this year = 230-230=0
Last year over accrual expenses to this year = 7600-7200=$400
Last year over cash expenses to this year = 520-300=$220
4) Analysis of Balance Sheet and Cash Flow Statement:
Cash has reduced of last year and non-cash current assets has increased.
PPE has increased due to purchase of PPE in cash.
Bonds payable has reduced due to payment through cash.