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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

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).

Case 2: Sherwin-Williams Company Sherwin-Williams, based in Cleveland, Ohio, manufactures a wide variety of paint and other coatings, which are marketed through its specialty stores and in other retail outlets. The company also manufactures paint for automobiles. The Automotive Division has had financial difficulty. During a recent year, five branch locations of the Automotive Division were closed, and new management was put in place for the remaining branches.

The following titles were shown on Sherwin-Williams’s balance sheet for that year.

Account payable

Machinery and Equipment

Accounts receivable, less allowance

Other accruals

Accrued taxes

Other capital

Building

Other current assets

Cash and Cash equivalents

Other long term liabilities

Common stock

Postretirement obligation other than pension

Employee compensation payable

Retained earnings

Finished good inventories

Short-term investment

Intangible and other assets

Taxes payable

Land

Work in process and raw material inventories.

Long-term debt

Instructions

(a) Organize the accounts in the general order in which they would have been presented in a classified balance sheet.

(b) When several of the branch locations of the Automotive Division were closed, what balance sheet accounts were most likely affected? Did the balance in those accounts decrease or increase?

E5-11 (L03) EXCEL (Balance Sheet Preparation) Presented below is the adjusted trial balance of Kelly Corporation at December 31, 2017.

Particular

Debit

Credit

Cash

\(?

Supplies

1,200

Prepaid insurance

1,000

Equipment

48,000

Accumulated depreciation – Equipment

\)4,000

Trademarks

950

Accounts payable

10,000

Salaries and wages payable

500

Unearned service revenue

2,000

Bonds payable (due 2024)

9,000

Common stock

10,000

Retained earnings

25,000

Service revenue

10,000

Salaries and wages expenses

9,000

Insurance expenses

1,400

Rent expenses

1,200

Interest expenses

900

Total

\(?

\)?

Additional information:

1. Net loss for the year was $2,500.

2. No dividends were declared during 2017.

Instructions

Prepare a classified balance sheet as of December 31, 2017.

What is the purpose of a free cash flow analysis?

Using the information in BE5-14, determine Martinez’s free cash flow, assuming that it reported net cash provided by operating activities of \(400,000.

BE5-14 (L05) Martinez Corporation engaged in the following cash transactions during 2017.

Sale of land and building \)191,000

Purchase of treasury stock 40,000

Purchase of land 37,000

Payment of cash dividend 95,000

Purchase of equipment 53,000

Issuance of common stock 147,000

Retirement of bonds 100,000

Compute the net cash provided (used) by investing activities.
See all solutions

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