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Chapter 14: Q14-14RQ (page 769)
Question: What is free cash flow, and how is it calculated?
Answer
Free cash flow is the cashavailable with the company for new opportunities.
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Rouse Exercise Equipment, Inc. reported the following financial statements for 2018:
ROUSE EXERCISE EQUIPMENT, INC. Income statement Year ended December 31, 2018 | |
Net sales revenue | \(713,000 |
Cost of goods sold | 342,000 |
Gross Profit | 371,000 |
Operating expense: | |
| 54,000 |
| 210,000 |
Net Income | \)107,000 |
ROUSE EXERCISE EQUIPMENT, INC. Comparative Balance sheet December 31, 2018 and 2017 | ||
2018 | 2017 | |
Assets | ||
Current assets: | ||
Cash | 17,000 | 16,000 |
Accounts receivable | 57,000 | 46,000 |
Merchandise inventory | 79,000 | 90,000 |
Long term assets: | ||
Plant assets | 260,500 | 216,400 |
Accumulated depreciation-Plant assets | (38,500) | (32,400) |
Investments | 96,000 | 73,000 |
Total assets | \(471,000 | \)409,000 |
Liabilities | ||
Current liabilities | ||
Accounts payable | 72,000 | 71,000 |
Salaries payable | 3,000 | 5,000 |
Long-term liabilities | ||
Notes payable | 61,000 | 69,000 |
Total liabilities | 136,000 | 145,000 |
Stockholder鈥檚 equity | ||
Common stock, no par | 45,000 | 34,000 |
Retained earnings | 290,000 | 230,000 |
Total stockholder鈥檚 equity | 335,000 | 264,000 |
Total liabilities and stockholder鈥檚 equity | \(471,000 | \)409,000 |
Requirements
1. Compute the amount of Rouse Exercise鈥檚 acquisition of plant assets. Assume the acquisition was for cash. Rouse Exercise disposed of plant assets at book value. The cost and accumulated depreciation of the disposed asset was $47,900. No cash was received upon disposal.
2. Compute new borrowing or payment of long-term notes payable, with Rouse
Exercise having only one long-term notes payable transaction during the year.
3. Compute the issuance of common stock with Rouse Exercise having only one
common stock transaction during the year.
4. Compute the payment of cash dividends.
Preparing the statement of cash flows-indirect statement This problem continues the Canyon Canoe Company situation from Chapter 13. Canyon Canoe Company's comparative balance sheet is shown below. 2019 amounts are assumed, but include several transactions from prior chapters.
Additional data fellow:
Question: What should the net change in cash section of the statement of cash flows always reconcile with?
Question: What accounts on the balance sheet must be evaluated when completing the investing activities section of the statement of cash flows?
Question: Preparing operating activities cash flow鈥攄irect method
The accounting records of Four Seasons Parts reveal the following:
Payment of salaries and wages \( 34,000
Net income \) 21,000
Depreciation expense 10,000
Payment of income tax 16,000
Payment of interest 17,000
Collection of dividend revenue 5,000
Payment of dividends 5,000
Payment to suppliers 51,000
Collections from customers 116,000
Compute cash flows from operating activities using the direct method for the year ended December 31, 2018.
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