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Chapter 14: Q14-14RQ (page 769)

Question: What is free cash flow, and how is it calculated?

Short Answer

Expert verified

Answer

Free cash flow is the cashavailable with the company for new opportunities.

Step by step solution

01

Definition of free cash flow

Free cash flow is the earnings available with the organization from operating activities after reducing planned long-term investments and cash payment of dividend to the stockholders.

02

Format of statement of free cash flow

Particulars

Amount($)

Net cash provided by operating activities

Cash payments planned for investments in long-term assets

Cash dividends

Free cash flow

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Most popular questions from this chapter


Question: Computing cash flows for investing and financing activities Consider the following facts for Java Jolt:

  1. Beginning and ending Retained Earnings are \(45,000 and \)70,000, respectively. Net income for the period is \(60,000.
  2. Beginning and ending Plant Assets are \)124,500 and \(134,500, respectively.
  3. Beginning and ending Accumulated Depreciation—Plant Assets are \)21,500 and \(26,500, respectively.
  4. Depreciation Expense for the period is \)17,000, and acquisitions of new plant assets total \(29,000. Plant assets were sold at a \)5,000 gain. Requirements
  5. How much are cash dividends?
  6. What was the amount of the cash receipt from the sale of plant assets?

Classifying cash flow items Consider the following transactions:

  1. Purchased equipment for \(130,000 cash.
  2. Issued \)14 par preferred stock for cash.
  3. Cash received from sales to customers of \(35,000.
  4. Cash paid to vendors, \)17,000.
  5. Sold building for \(19,000 gain for cash.
  6. Purchased treasury stock for \)28,000.
  7. Retired a notes payable with 1,250 shares of the company’s common stock.

Identify the category of the statement of cash flows in which each transaction would be reported.

Question: Preparing the statement of cash flows—indirect method Use the Preston Media Corporation data in Short Exercise S14-7 and the results you calculated from the requirements. Prepare Preston Media’s statement of cash flows— indirect method—for the year ended December 31, 2018.

Computing cash flow items—direct method Consider the following facts:

  1. Beginning and ending Accounts Receivable are \(24,000 and \)20,000, respectively. Credit sales for the period total \(68,000.
  2. Cost of goods sold is \)77,000.
  3. Beginning Merchandise Inventory balance is \(29,000, and ending Merchandise Inventory balance is \)26,000.
  4. Beginning and ending Accounts Payable are \(12,000 and \)16,000, respectively.

Requirements

  1. Compute cash collections from customers.
  2. Compute cash payments for merchandise inventory

Question: If current assets other than cash increase, what is the effect on cash? What about a decrease in current assets other than cash?
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