Exercise 14-6 Prepare a Statement of Cash Flows; Free Cash Flow [LO14-1, LO14-2,

Question

Exercise 14-6 Prepare a Statement of Cash Flows; Free Cash Flow [LO14-1, LO14-2, LO14-3]

Comparative financial statement data for Carmono Company follow:

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.

Using the indirect method, prepare a statement of cash flows for this year. (List any deduction in cash and cash outflows as negative amounts.)

Compute Carmono’s free cash flow for this year. (Negative amount should be indicated by a minus sign.)

Comparative financial statement data for Carmono Company follow:

Explanation / Answer

Using the indirect method, prepare a statement of cash flows for this year

Free Cash flow = Cash flow from operating activities-Purchase of property,plant and equipment

= 46-40

Free cash flow = 6

Cash flow from operating activities Net income 35 Adjustment to reconcile net income Depreciation expense 15 Decrease account receivable 2 Increase inventory -10 Increase account payable 4 Net cash flow from operating activities 46 Cash flow from investing activities Purchase property,plant and equipment -40 Net cash flow from investing activities -40 Cash flow from financing activities Issue common stock 5 Dividend paid -14 Net cash flow from financing activities -9 Net Cash flow -3 Beginning Cash 6 Ending Cash 3

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