Question

Comparative financial statement data for Carmono Company follow. This Year Last Year $ 3 5 6 24 200 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 150 $ 220 $ 36 $250 $ 2 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 9e 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

1.  

Carmono Company Statement of Cash Flows For this year ended December 31
Operating Activities
Net Income		$ 35
Adjustments to reconcile net income to net cash provided by operations
Depreciation expense	$ 15
Decrease in accounts receivable	2
Increase in inventory	(10)
Increase in accounts payable	4	11
Net cash provided by operations		46
Investing Activities
Cash paid for purchase of equipment	(40)
Net cash used for Investing Activities		(40)
Financing Activities
Cash from issuance of common stock	5
Cash paid for dividends	(14)
Net cash used for Financing Activities		(9)
Net increase ( decrease) i cash		(3)
Cash balance, last year		6
Cash balance, this year		3

2. Free cash flow = Net cash provided by operations - net cash used for investing activities = $ 46 - $ 40 = $ 6