The following are the financial statements of Nosker Company. NOSKER COMPANY Com

Question

The following are the financial statements of Nosker Company.

NOSKER COMPANY

Comparative Balance Sheets

December 31

Assets 2019 2018 Cash $38,000 $20,000 Accounts receivable 30,000 14,000 Inventory 27,000 20,000 Equipment 60,000 78,000 Accumulated depreciation—equipment (29,000) (24,000) Total $126,000 $108,000 Liabilities and Stockholders' Equity 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

NOSKER COMPANY

Income Statement

For the Year Ended December 31, 2019

Sales revenue $242,000 Cost of goods sold 175,000 Gross profit 67,000 Operating expenses 24,000 Income from operations 43,000 Interest expense 3,000 Income before income taxes 40,000 Income tax expense 8,000 Net income $32,000

Additional data:

1. Dividends declared and paid were $20,000.

2. 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.

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

4. All sales and purchases are on account.

Instructions

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

Cash from operating activities $31,500

(b) Compute free cash flow.

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Explanation / Answer

CASH FLOW STATEMENT OF NOSKER COMPANY FOR THE YEAR ENDING December 31, 2019 Details Amount in $ Cash Flows from Operating Activities: Net income before tax 40,000 Adjustment for Reconcile Net Income to net cash provided from Operations Add: Interest Expense 3,000 Add: Depreciation Expense 14,500 Less: Increase in Inventory(27,000-20,000) -7,000 Less: Increase in Accounts receivable(30,000-14,000) -16,000 Add:Increase in Accounts Payable(24,000-15,000) 9,000 Less: Taxes Paid (8,000+8,000-7,000) -9,000 Net Cash inflows from Operating Activities 34,500 Cash Flows from Investing Activities: Inflow from sale of Equipment 8,500 Net cash inflow from Investing Activities 8,500 Cash flows from Financing Activities Interest paid -3,000 Dividend paid -20,000 Redemption of Bonds payable(33,000-27,000) -6,000 Issuance of Common Stock(18,000-14,000) 4,000 Net Cashoutflows from Financing Activities -25,000 Net Cash inflow during the year 18,000 Add: Opening balance of cash and cash Equivalents 20,000 Closing balance of cash and cash Equivalents 38,000 Working Note: Purchase of Equipment: Opening Balance of Accumulate ddep 24,000 Less: Accumulated dep on equipment sold(18,000-,8500) -9,500 Add: Depreciation during the year 14,500 Closing Balance of Accumulated Dep 29,000 Opening Balance of Cost of Equipment 78,000 Less: Cost of Equipment sold -18,000 Less: Closing balance of cost of Equipment 60,000 Equipment purchased Nil

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