Comparative financial statement data for Carmono Company follow: For this year,

Question

Comparative financial statement data for Carmono Company follow:

For this year, the company reported net income as follows:

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.

This Year Last Year Assets Cash $ 8.50 $ 16.00 Accounts receivable 54.00 47.00 Inventory 97.50 84.40 Total current assets 160.00 147.40 Property, plant, and equipment 237.00 198.00 Less accumulated depreciation 47.20 35.40 Net property, plant, and equipment 189.80 162.60 Total assets $ 349.80 $ 310.00 Liabilities and Stockholders’ Equity Accounts payable $ 58.50 $ 48.00 Common stock 126.00 97.00 Retained earnings 165.30 165.00 Total liabilities and stockholders’ equity $ 349.80 $ 310.00

Explanation / Answer

1.

2.

CARMONO COMPANY Cash flow statement For the year ended Working Cash flow from operating activities Net income $   20.00 Adjustment to reconcile net income to: Depreciation expense $   11.80 $47.20 - $35.40 Changes in current operating assets and liabilities Increase in accounts receivable $   (7.00) Increase in inventory $ (13.10) Increase in accounts payable $   10.50 $      2.20 Net cash provided by operating activities $   22.20 Cash flow from investing activities Cash paid to acquire property, plant and equipment $ (39.00) Net cash used by investing activities $ (39.00) Cash flow from financing activities Proceeds from issue of common stock $   29.00 Cash dividend paid $ (19.70) $165.3 - $20 - $165 Net cash provided by financing activities $      9.30 Net increase in cash and cash equivalents $   (7.50) Cash and cash equivalents at beginning of period $   16.00 Cash and cash equivalents at end of period $      8.50

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