Problem

Preparing the statement of cash flows—indirect method, evaluating cash flows, and measurin...

Preparing the statement of cash flows—indirect method, evaluating cash flows, and measuring free cash flows [35-45 min]

The comparative balance sheet of Jackson Educational Supply at December 31, 2012, reported the following:

	December 31,
	2012	2011
Current assets:
Cash and cash equivalents ..........	$ 88,200	$ 22,500
Accounts receivable...............	14,400	21,700
Inventories......................	63,600	60,400
Current liabilities:
Accounts payable.................	28,600	27,100
Accrued liabilities.................	10,600	11,200

Morgensen’s transactions during 2012 included the following:

Requirements

1. Prepare the statement of cash flows of Morgensen Educational Supply for the year ended December 31, 2012. Use the indirect method to report cash flows from operating activities.
2. Evaluate Morgensen’s cash flows for the year. Mention all three categories of cash flows and give the reason for your evaluation.
3. If Morgensen plans similar activity for 2013, what is its expected free cash flow?