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Chapter 14: Q10SE (page 772)

Julie Lopez Company expects the following for 2018:

  1. Net cash provided by operating activities of \(148,000.
  2. Net cash provided by financing activities of \)56,000.
  3. Net cash used for investing activities of \(77,000 (no sales of long-term assets).
  4. Cash dividends paid to stockholders of \)7,000.

How much free cash flow does Lopez expect for 2018?

Short Answer

Expert verified

Free cash flow equals $64,000.

Step by step solution

01

Step 1- Explanation and Definition

Free cash flow is the excess of available cash generated by operating activities after the settlement planned investments in long-term assets cash dividends.

02

Step 2- Calculation of Free Cash Flow

Freecashflow=Netcashprovidedbyoperatingactivities−Cashpaymentsplannedforinvestmentsinlongtermassets−Cashdividends=$148,000−$77,000−$7,000=$64,000

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Most popular questions from this chapter

Question: Computing cash flows from investing and financing activities Use the data in Short Exercise S14-5 to complete this exercise. Prepare Winding Road Cellular’s statement of cash flows using the indirect method for the year ended April 30, 2018. Assume beginning and ending Cash are \(48,000 and \)52,200, respectively.

Accountants for Benson, Inc. have assembled the following data for the year ended December 31, 2018:

2018 2017 Current Assets: Cash \( 105,100 \) 18,000 Accounts Receivable 64,400 68,900 Merchandise Inventory 86,000 82,000 Current Liabilities: Accounts Payable 58,000 56,100 Income Tax Payable 14,700 16,900

Transaction Data for 2018:

Issuance of common stock for cash \( 37,000

Payment of notes payable \) 47,100

Depreciation expense 24,000

Payment of cash dividends 53,000

Purchase of equipment with cash 69,000

Issuance of notes payable to borrow cash 68,000

Acquisition of land by issuing long-term notes payable 123,000

Gain on sale of building 4,500

Book value of building sold 61,000

Net income 66,000

Prepare Benson’s statement of cash flows using the indirect method. Include an accompanying schedule of non-cash investing and financing activities

Preparing the statement of cash flows—indirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Rolling Hills, Inc. follow:

Additionally, Rolling Hills purchased land of \(21,100 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset was $13,410. The plant acquisition was for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

Preparing the statement of cash flows—direct method

Diversion Rare Coins (DRC) was formed on January 1, 2018. Additional data for the year follow:

a. On January 1, 2018, DRC issued no par common stock for \(450,000.

b. Early in January, DRC made the following cash payments:

1. For store fixtures, \)46,000

2. For merchandise inventory, \(310,000

3. For rent expense on a store building, \)18,000

c. Later in the year, DRC purchased merchandise inventory on account for \(238,000. Before year-end, DRC paid \)138,000 of this accounts payable.

d. During 2018, DRC sold 2,700 units of merchandise inventory for \(400 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was \)340,000, and ending merchandise inventory totaled \(208,000.

e. The store employs three people. The combined annual payroll is \)97,000, of which DRC still owes \(6,000 at year-end.

f. At the end of the year, DRC paid income tax of \)18,000. There was no income taxes payable.

g. Late in 2018, DRC paid cash dividends of $35,000.

h. For store fixtures, DRC uses the straight-line depreciation method, over five years, with zero residual value.

Requirements

1. Prepare DRC’s income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.

2. Prepare DRC’s balance sheet at December 31, 2018.

3. Prepare DRC’s statement of cash flows for the year ended December 31, 2018. Format cash flows from operating activities by the direct method

Using a spreadsheet to prepare the statement of cash flows— indirect method The 2018 comparative balance sheet and income statement of Attleboro Group, Inc. follow. Attleboro disposed of a plant asset at book value in 2018.

Prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method. A plant asset was disposed of for \(0. The cost and accumulated depreciation of the disposed asset was \)13,600. There were no sales of land, no retirement of common stock, and no treasury stock transactions. Assume plant asset and land acquisitions were for cash.
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