Sales Revenue $242,000 Cost of Goods Sold $175,000 Gross Profit $67,000 Operatin

Question

Sales Revenue                                 $242,000

Cost of Goods Sold                          $175,000

Gross Profit                                        $67,000

Operating expenses                       $24,000

Interest Expense                             $3,000

Interest before Income tax         $40,000

Income tax expense                       $8,000

Net Income                                        $32,000

Dividends declared and paid were $20,000

During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had a book value of &8,500 at the time of Sale.

All depreciation expense $14,500, is in the operating expenses.

All sales and purchases are on account.

Prepare a statement of cash flows using the indirect method.

Compute free cash flow.

Assets                                   2014                       2013

Cash                                      38,000                   20,000

Accounts receivable       30,000                   14,000

Inventory                            27,000                   20,000

Equipment                          60,000                   78,888

(Accumulated Dep.         (29,000)                (24,000)

Total                                      126,000 108,000

Liabilities

Accounts Payable            24,000                   15,000

Income Taxes Payable   7,000                     8,000

Bonds Payable                  27,000                   33,000

Common Stock                 18,000                   14,000

Retained earnings           50,000                   38,000

Total                                      126,000 108,000

Explanation / Answer

Cash flows from operating activities Net income $32,000 Adjustments for: Depreciation and amortization 14,500 14,500 Increase in account receivable -16,000 increase in inventory -7,000 Increase in account payable 9,000 decrease in account payable -1,000 increase in notes payable decrease in accrued liabilites -15,000 Cash generated from operations 31,500 Cash flows from investing activities Purchase of new Equipment Proceeds from sale of Equipment    8,500 Purchase of patent Net cash used in investing activities 8,500 Cash flows from financing activities Proceeds from issue of common stock 4,000 Bond repaid -6,000 Dividends paid -20,000 Net cash used in financing activities -22,000 Net increase in cash and cash equivalents 18,000 Cash and cash equivalents at beginning of period 20,000 Cash and cash equivalents at end of period $38,000

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