Question

The comparative statement of financial position of Marigold Corporation as at December 31, 2020, follows: MARIGOLD CORPORATION Statement of Financial Position December 31 December 31 Assets 2020 2019 Cash $ 50,000 $ 6,800 Accounts receivable 89,200 88,200 27,000 21,400 Equipment Less: Accumulated depreciation (6,200) (10.800) $ 160,000 $ 105,600 Total Liabilities and Shareholders' Equity Accounts payable $ 20,000 $ 10,000 Common shares 100,000 78,400 Retained earnings 40,000 17,200 Total $ 160,000 $ 105,600 Net income of $36,000 was reported and dividends of $13,200 were declared and paid in 2020. New equipment was purchased, and equipment with a carrying value of $4,500 (cost of $11,500 and accumulated depreciation of $7,000) was sold for $8,200. (a) Calculate the current ratio and debt to total assets ratio as at December 31, 2019 and 2020. Calculate the free cash flow for December 31, 2020. (Round answers to 2 decimal places, e.g. 52.75.) 2020 2019 Current Ratio 6.96 :1 9.5 :1 Debt to total assets ratio 12.5 % 9.47 % Free cash flow, December 31, 2020 $ 24200

I just want to know how to calculate the free cash flow for this question, thanks.

Answer 1

Free cash flows, December 31, 2020 Cash flow from operating activities Less: purchase of fixed assets Free cash flows, December 31,2020 $43,7001 $17,100 $26,600 $36,000 Working notes: Cash flows from Operating Activities Net Income Adjustments to reconcile net income to net cash provided by Operating Activities Depreciation Gain on sale of equipment Increase in Accounts Receivable Decrease in Accounts payable $2,400 ($3,700) ($1,000) $10,000 Opening balance Bank Profit and loss account $7,000 $8,200 Equipment $21,400 Accumulated Dep $17,100 Bank $3,700 Closing balance $42,200 $7,700 $43,700 $27,000 $42,200 Net Cash provided by Operating Activities Accumulated Depreciation- Equipment Equipment $7,000 Opening balance (on equipment sold) P and L Account Closing balance $6,200 $13,200 $10,800 $2,400 $13,200