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Chapter 5: Q16BE. (page 240)

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.

Short Answer

Expert verified

Free cash flow for the business entity is$215,000.

Step by step solution

01

Definition of Free Cash Flow

The cash that will be available with the business entity after paying for the acquisition of the capital assets and any cash dividend paid is known as free cash flow.

02

Free Cash Flow

Particular

Amount $

Cash from operating activities

$400,000

Less: Capital expenditure

(90,000)

Less: Dividend paid

(95,000)

Free Cash Flow

$215,000

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Most popular questions from this chapter

Hawthorn Corporation’s adjusted trial balance contained the following accounts at December 31, 2017: Retained Earnings \(120,000, Common Stock \)750,000, Bonds Payable \(100,000, Paid-in Capital in Excess of Par—Common Stock \)200,000, Goodwill \(55,000, Accumulated Other Comprehensive Loss \)150,000, and Noncontrolling Interest $35,000. Prepare the stockholders’ equity section of the balance sheet.

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

(Balance Sheet Adjustment and Preparation) The adjusted trial balance of Eastwood Company and other related information for the year 2017 are presented as follows.

EASTWOOD COMPANY

Adjusted Trial Balance

December 31, 2017

Debit

Credit

Cash

\(41,000

Accounts receivables

163,500

Allowance for doubtful account

\)8,700

Prepaid Insurance

5,900

Inventory

208,500

Equity Investment (long-term)

339,000

Land

85,000

Construction in the process (building)

124,000

Patent

36,000

Equipment

400,000

Accumulated depreciation – Equipment

240,000

Discount on bonds payable

20,000

Account payable

148,000

Accrued liabilities

49,200

Notes payable

94,000

Bond payable

200,000

Common stock

500,000

Paid-in-capital in Excess of par – Common stock

45,000

Retained earnings

138,000

Total

\(1,422,900

\)1,422,900

Additional information:

1. The LIFO method of inventory value is used.

2. The cost and fair value of the long-term investments that consist of stocks (with ownership less than 20% of total shares) are the same.

3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) The land on which the building is being constructed costs \(85,000, as shown in the trial balance.

4. The patents were purchased by the company at a cost of \)40,000 and are being amortized on a straight-line basis.

5. Of the discount on bonds payable, \(2,000 will be amortized in 2018.

6. The notes payable represent bank loans that are secured by long-term investments carried at \)120,000. These bank loans are due in 2018.

7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2028.

8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding.

Instructions

Prepare a balance sheet as of December 31, 2017, so that all-important information is fully disclosed.

Kathleen Battle says, “Retained earnings should be reported as an asset, since it is earnings which are reinvested in the business.” How would you respond to Battle?

(Classification of Balance Sheet Accounts) Presented below are the captions of Faulk Company’s balance sheet.

(a) Current assets

(f) Current liabilities

(b) Investments

(g) Noncurrent liabilities

(c) Property, plant, and equipment

(h) Capital stock

(d) Intangible assets

(i) Additional paid-in capital

(e) Other assets

(j) Retained earnings

Instructions

Indicate by letter where each of the following items would be classified.

1. Preferred stock

11. Cash surrender value of life insurance

2. Goodwill

12. Note payable

3. Salaries and wages payable

13. Supplies

4. Account payable

14. Common stock

5. Building

15. Land

6. Equity investment (trading)

16. Bond sinking fund

7. Current maturity of long-term debt

17. Inventory

8. Premium on bond payable

18. Prepaid insurance

9. Allowance for doubtful accounts

19. Bond payable

10. Accounts receivable

20. Income tax payable
See all solutions

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