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Chapter 14: Q14-14RQ (page 769)

Question: What is free cash flow, and how is it calculated?

Short Answer

Expert verified

Answer

Free cash flow is the cashavailable with the company for new opportunities.

Step by step solution

01

Definition of free cash flow

Free cash flow is the earnings available with the organization from operating activities after reducing planned long-term investments and cash payment of dividend to the stockholders.

02

Format of statement of free cash flow

Particulars

Amount($)

Net cash provided by operating activities

Cash payments planned for investments in long-term assets

Cash dividends

Free cash flow

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Most popular questions from this chapter

Classifying transactions on the statement of cash flows鈥攊ndirect method Consider the following transactions:

Identify the category of the statement of cash flows, indirect method, in which each transaction would be reported.

Question: Explain why depreciation expense, depletion expense, and amortization expense are added to net income in the operating activities section of the statement of cash flows when using the indirect method.


Question: Computing cash flows for investing and financing activities Consider the following facts for Java Jolt:

  1. Beginning and ending Retained Earnings are \(45,000 and \)70,000, respectively. Net income for the period is \(60,000.
  2. Beginning and ending Plant Assets are \)124,500 and \(134,500, respectively.
  3. Beginning and ending Accumulated Depreciation鈥擯lant Assets are \)21,500 and \(26,500, respectively.
  4. Depreciation Expense for the period is \)17,000, and acquisitions of new plant assets total \(29,000. Plant assets were sold at a \)5,000 gain. Requirements
  5. How much are cash dividends?
  6. What was the amount of the cash receipt from the sale of plant assets?

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.

The 2018 comparative balance sheet and income statement of Appleton Group, Inc. follow. Appleton disposed of a plant asset at book value during 2018

Prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method. A plant asset was disposed of for \(0. The cost and accumulated depreciation of the disposed asset was \)11,600. There were no sales of land, no retirement of common stock, and no treasury stock transactions. Assume plant asset and land acquisitions were for cash.
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