PINKSTON CORPORATION Comparative Balance Sheets December 31 2014 2013 Cash $ 28,

Question

PINKSTON CORPORATION Comparative Balance Sheets December 31 2014 2013 Cash $ 28,200 $ 17,700 Accounts receivable 24,200 22,300 Investments 23,000 16,000 Equipment 60,000 70,000 Accumulated depreciation-equipment (14,000) (10,000) Total $121,400 $116,000 Accounts payable $ 19,600 $ 11,100 Bonds payable 10,000 30,000 Common stock 60,000 45,000 Retained earnings 31,800 29,900 Total $121,400 $116,000 Additional information: 1. Net income was $28,300. Dividends declared and paid were $26,400. 2. Equipment which cost $10,000 and had accumulated depreciation of $1,200 was sold for $4,300. 3. All other changes in noncurrent account balances had a direct effect on cash flows, except the change in accumulated depreciation. Instructions (a) Prepare a statement of cash flows for 2014 using the indirect method. (b) Compute free cash flow.

Explanation / Answer

Statement of Cash Flows Indirect Method Cash Flow from Operating Activities Net Income 28300 Depreciation 5200 (4000+1200) Increase in Accounts Receivable -1900 Increase in Accounts Payable 8500 Add: Loss on Sale of Equipment 4500 (10000-1200-4300) Cash Flow from Operating Activities 44600 Cash Flow from Investing Activities Increase in Investments -7000 Common Stock 15000 Sale of Equipment 4300 Cash Flow from Investing Activities 12300 Cash Flow from Financing Activities Dividend Paid -26400 Decrease in Bonds Payable -20000 Cash used from Financing Activities -46400 Net Cash Flows 10500 Opening Cash 17700 Closing Cash 28200

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