Question

Problem 12-7A

The following are the financial statements of Swifty Corporation.

Swifty Corporation Comparative Balance Sheets December 31
Assets		2019			2018
Cash		$37,200			$19,700
Accounts receivable		33,000			18,400
Inventory		30,800			20,800
Equipment		60,000			77,600
Accumulated depreciation—equipment		(29,800	)		(23,500	)
Total		$131,200			$113,000
Liabilities and Stockholders’ Equity
Accounts payable		$28,300			$16,700
Income taxes payable		7,300			8,500
Bonds payable		26,500			33,900
Common stock		17,700			14,000
Retained earnings		51,400			39,900
Total		$131,200			$113,000

Swifty Corporation Income Statement For the Year Ended December 31, 2019
Sales revenue		$241,400
Cost of goods sold		175,800
Gross profit		65,600
Operating expenses		23,000
Income from operations		42,600
Interest expense		3,400
Income before income taxes		39,200
Income tax expense		7,200
Net income		$32,000

Additional data:

1.		Dividends declared and paid were $20,500.
2.		During the year, equipment was sold for $9,600 cash. This equipment cost $17,600 originally and had a book value of $9,600 at the time of sale.
3.		All depreciation expense, $14,300, is in the operating expenses.
4.		All sales and purchases are on account.

a. Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

b. Compute free cash flow.

Answer 1

Statement of Cash Flows
For the Year Ended December 31, 2019
Cash Flows from Operating Activities:
Net income		32000
Adjustments to reconcile net income to
Net cash provided by operating activities
Depreciation expense	14300
Increase in Accounts Receivable	-14600
Increase in inventory	-10000
Increase in accounts payable	11600
Decrease in Income taxes payable	-1200
		100
Net cash provided by operating activities		32100
Cash Flows from Investing Activities:
Sale of Equipment		9600
Cash Flows from Financing Activities
Payment of Cash Dividends	-20500
Redemption of Bonds Payable	-7400
Issuance of Common Stock	3700
Net Cash Used by Financing Activities		-24200
Net Increase in Cash		17500
Cash at Beginning of Period		19700
Cash at End of Period		37200
b
Net cash provided by operating activities	32100
Payment of Cash Dividends	-20500
Free cash flow	11600