Question

Comparative financial statement data for Carmono Company follow: This Year Last Year $ 3 $ 6 24 50 Assets Cash Accounts receivable Inventory Total current assets Property, plant, and equipment Less accumulated depreciation Net property, plant, and equipment Total assets Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings Total liabilities and stockholders' equity 240 65 175 $ 250 40 70 200 50 150 $ 220 $ 36 $ 40 150 60 145 39 $ 250 $ 220 For this year, the company reported net income as follows: Sales Cost of goods sold Gross margin Selling and administrative expenses Net income $ 275 150 125 90 $ 35 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

Statement of Cash Flows
For the Year Ended December 31
Operating Activities:
Net income		35
Adjustments to convert net income to cash basis:
Depreciation expense	15
Decrease in Accounts Receivable	2
Increase in inventory	-10
Increase in accounts payable	4
		11
Net cash provided by operating activities		46
Investing Activities:
Increase in Plant and Equipment	-40
Net cash used in investing activities		-40
Financing Activities
Increase in common stock	5
Cash dividends	-14		=39+35-60
Net cash used in financing activities		-9
Net decrease in Cash		-3
Beginning cash and cash equivalents		6
Ending cash and cash equivalents		3
2
Net cash provided by operating activities	46
Increase in Plant and Equipment	-40
Cash dividends	-14
Free cash flow	-8