(a) Prepare a statement of cash flows using the indirect method (b) Compute free

Question

(a) Prepare a statement of cash flows using the indirect method
(b) Compute free cash flow

Presented below are the financial statements of Rocastle Company ROCASTLE COMPANY Comparative Balance Sheets December 31 Assets 2012 2011 Cash $24,000 $33,000 Accounts receivable 25,000 14,000 Inventory 41,000 25,000 Equipment $70,000 $78,000 Less: Accumulated depreciation- equipment (27,000) 43,000 (24,000) 54,000 Total $133,000 $126,000 Liabilities and Stockholders' Equity Accounts payable $31,000 $43,000 Income taxes payable 24,000 20,000 Bonds payable 20,000 10,000 Common stock 25,000 25,000 Retained earnings 33,000 28,000 Total $133,000 $126,000 ROCASTLE COMPANY Income Statement For the Year Ended December 31, 2012 Sales revenue $286,000 Cost of goods sold 204,000 Gross profit 82,000

Explanation / Answer

Statement of cash flow :

Free cash flow = net cash flow from operating activiites-purchase of equipment

                      = (1000-7000)

Free cash flow = (6000)

Cash flow from operating activities Net income 28000 Adjustment to reconcile net income Depreciation 8000 Increase account receivable (11000) Increase inventory (16000) Decrease account payable (12000) Increase income tax payable 4000 Net cash flow from operating activities 1000 Cash flow from investing activities Sale of equipment 10000 Purchse of equipment (7000) Net cash flow from investing activities 3000 Cash flow from fianancing activities Dividend paid (23000) Issue bonds paayable 10000 net cash flow from financing actiivities (13000) Net cash flow (9000) Beginning cash 33000 Ending Cash 24000

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