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Chapter 5: Q12BE. (page 239)

Keyser Beverage Company reported the following items in the most recent year.

Net income $40,000

Dividends paid 5,000

Increase in accounts receivable 10,000

Increase in accounts payable 7,000

Purchase of equipment (capital expenditure) 8,000

Depreciation expense 4,000

Issue of notes payable 20,000

Compute net cash provided by operating activities, the net change in cash during the year, and free cash flow.

Short Answer

Expert verified

The Free Cash flow of the business entity is $28,000.

Step by step solution

01

Definition of Notes Payable

The liability account reflects the amount borrowed by the business entity through a written promise to repay in a future period along with accrued interest.

02

Cashflow from the operation and net changes in the cash

Particular

Amount $

Net income

$40,000

Add or less: adjustments to net income

Depreciation expenses

4,000

Increase in accounts receivables

(10,000)

Increase in account payable

7,000

Cash flow from operating activities

$41,000

Investing activities:

Purchase of equipment

(8,000)

Financing activities:

Issue of notes payable

20,000

Dividend paid

(5,000)

Net increase in cash during the year

$48,000

03

Free Cashflow

Particular

Amount $

Cash flow from operating activities

$41,000

Less: Capital expenditure

(8,000)

Less: Dividend paid

(5,000)

Free Cash Flow

$28,000

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Most popular questions from this chapter

What are the major limitations of the balance sheet as a source of information?

In what section of the balance sheet should the following items appear, and what balance sheet terminology would you use?

(a) Treasury stock (recorded at cost).

(b) Checking account at bank.

(c) Land (held as an investment).

(d) Sinking fund.

(e) Unamortized premium on bonds payable.

(f) Copyrights.

(g) Pension fund assets.

(h) Premium on common stock.

(i) Long-term investments (pledged against bank loans payable).

BE5-9 (L03) Use the information presented in BE5-8 for Adams Company to prepare the long-term liabilities section of the balance sheet.

BE 8: Included in Adams Company’s December 31, 2017, trial balance are the following accounts: Accounts Payable \(220,000, Pension Liability \)375,000, Discount on Bonds Payable \(29,000, Unearned Rent Revenue \)41,000, Bonds Payable \(400,000, Salaries and Wages Payable \)27,000, Interest Payable \(12,000, and Income Taxes Payable \)29,000. Prepare the current liabilities section of the balance sheet.

11. Should available-for-sale securities always be reported as a current asset? Explain.

EXCEL (Balance Sheet Preparation) Presented below are a number of balance sheet items for Montoya, Inc., for the current year, 2017.

Goodwill

\(125,000

Accumulated depreciation - equipment

\)292,000

Payroll tax payable

177,591

Inventory

239,800

Bond payable

300,000

Rent payable (short-term)

45,000

Discount on bond payable

15,000

Income tax payable

98,362

Cash

360,000

Rent payable (long-term)

480,000

Land

480,000

Common stock, \(1 par value

200,000

Notes receivable

445,700

Preferred stock, \)10 par value

150,000

Note payable

265,000

Prepaid expenses

87,920

Account payable

490,000

Equipment

1,470,000

Retained earnings

Debt investment (trading)

121,000

Income tax receivable

97,630

Accumulated depreciation – building

270,200

Note payable (Long-term)

1,600,000

Buildings

1,640,000

Instructions

Prepare a classified balance sheet in good form. Common stock authorized was 400,000 shares, and preferred stock authorized was 20,000 shares. Assume that notes receivable and notes payable are short-term unless stated otherwise. The cost and fair value of equity investments (trading) are the same.
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