Here are comparative balance sheets for Migitsu Company. Prepare a statement of

Question

Here are comparative balance sheets for Migitsu Company. Prepare a statement of cash flows—indirect method.

MIGITSU COMPANY

Comparative Balance Sheets

December 31

Assets                                                                                       2017                        2016

Cash                                                                                    $   73,000                     $   22,000

Accounts receivable                                                                 87,000                         76,000

Inventories                                                                             170,000                          191,000

Land                                                                                        72,000                      100,000

Equipment                                                                             260,000                       200,000

Accumulated depreciation                                                     (66,000)                        (32,000)

Total                                                                       $ 596,000            $ 557,000

Liabilities and Stockholders’ Equity

Accounts payable                                                                $ 37,000                      $ 47,000

Bonds payable                                                         150,000                      210,000

Common stock ($1 par)                                                        216,000                 174,000

Retained earnings                                                                 193,000                       126,000

Total                                                                      $ 596,000               $ 557,000

Additional information:

1. Net income for 2017 was $100,000.

2. Cash dividends of $33,000 were declared and paid.

3. Bonds payable amounting to $60,000 were redeemed for cash $60,000.

4. Common stock was issued for $42,000 cash.

5. Equipment that cost $50,000 and had a book value of $30,000 was sold for $36,000 during 2017; land was sold at cost.

Instructions

(a) Prepare a statement of cash flows for 2017 using the indirect method.

(b) Compute free cash flow for 2017.

Explanation / Answer

Solution:-

1. Prepare a statement of cash flows for 2017 using the indirect method:-

(b) Compute free cash flow for 2017:-

Please Rate or comment if you have any doubt regarding this solution.

MIGITSU COMPANY Statement of cash flows For the year ended December 31, 2017 Cash flow from operating activitys Net income 100,000 Adjustments to reconcile net incometo net cash provided by operating activities: Depreciation expense 34,000 Profit on sale of equipment (6,000) Increase in accounts receivable (11,000) Decrease in inventory 21,000 Decrease in accounts payable (10,000) 28,000 Net cash provided by operating activities 128,000 Cash flows from investing activities: Sale of land 28,000 Sale of equipment 36,000 Purchase of equipment (90,000) Net cash used by investing activities (26,000) Cash flows from financing activities: Payment of dividends (33,000) Redumption of bonds (60,000) Issuance of common stock 42,000 Net cash used by Financing activies (51,000) Net increase in cash 51,000 Cash at beginning period 22,000 Cash at end of period 73,000

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