Chapter 5: Q27Q. (page 238)

Net income for the year for Tanizaki, Inc. was $750,000, but the statement of cash flows reports that net cash provided by operating activities was $860,000. Tanizaki also reported capital expenditures of $75,000 and paid dividends in the amount of $30,000. Compute Tanizaki’s free cash flow

Short Answer

Expert verified

The free cash flow of the business entity is$755,000.

Step by step solution

Definition of Liquidity

Liquidity is the measure reflecting the capacity that a business entity possesses for repaying the obligations that will become due in a short period is known as liquidity.

Calculation of Free Cash Flow

Particular	Amount $
Net cash provided by operating activities	$860,000
Less: Capital expenditure	(75,000)
Less: Cash dividend	(30,000)
Free Cash Flow	$755,000

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SAMEED BROTHERS CORPORATION
BALANCE SHEET
DECEMBER 31, 2017
Assets
Current assets
Cash	\(26,000
Marketable securities	18,000
Accounts receivables	25,000
Inventory	20,000
Supplies	4,000
Stock investment in subsidiary company	20,000	\)113,000

Investment
Treasury stock		25,000

Property, Plant and Equipment
Building and land	91,000
Less: Reserve for depreciation	(31,000)	60,000

Other assets
Cash Surrender value of life insurance		19,000
Total assets		\(217,000

Liabilities and Stockholder’s equity
Accounts payable	\)22,000
Reserve for income taxes	15,000
Customer’s account with credit balance	1	\(37,001

Deferred credit
Unamortized premium on bonds payable		2,000

Long term liabilities
Bonds payable		60,000
Total liabilities		99,001

Common stock
Common stock at par \)5	85,000
Earned surplus	24,999
Cash Dividend declared	8,000	117,999
Total liabilities and Stockholder’s equity		$217,000

(a) Issuance of common stock.	(h) Payment of cash dividends.
(b) Purchase of land and building.	(i) Exchange of furniture for office equipment.
(c) Redemption of bonds	(j) Purchase of treasury stock.
(d) Sale of equipment.	(k) Loss on sale of equipment.
(e) Depreciation of machinery.	(l) Increase in accounts receivable during the year.
(f) Amortization of patent.	(m) Decrease in accounts payable during the year.
(g) Issuance of bonds for plant assets.

Net income for the year for Tanizaki, Inc. was \(750,000, but the statement of cash flows reports that net cash provided by operating activities was \)860,000. Tanizaki also reported capital expenditures of \(75,000 and paid dividends in the amount of \)30,000. Compute Tanizaki’s free cash flow

Short Answer

Step by step solution

Definition of Liquidity

Calculation of Free Cash Flow

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