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Chapter 5: 15E (page 246)

Presented below is a condensed version of the comparative balance sheets for Zubin Mehta Corporation for the last two years at December 31.

2017

2016

Cash

\(177,000

\)78,000

Accounts receivables

180,000

185,000

Investment

52,000

74,000

Equipment

298,000

240,000

Accumulated depreciation

(106,000)

(89,000)

Current liabilities

134,000

151,000

Common stock

160,000

160,000

Retained earnings

307,000

177,000

Additional information:

Investments were sold at a loss of \(10,000; no equipment was sold; cash dividends paid were \)30,000; and net income was $160,000.

Instructions

(a) Prepare a statement of cash flows for 2017 for Zubin Mehta Corporation.

(b) Determine Zubin Mehta Corporation鈥檚 free cash flow.

Short Answer

Expert verified

The free cash flow of the business entity is$87,000.

Step by step solution

01

Definition of Retained Earnings

Earnings of the business entity held for some re-investment in the future period or to distribute as dividend to the shareholders is known as retained earnings.

02

Statement of cash flow

Particular

Amount $

Amount $

Cash flow from operations

Net income

$160,000

Add or less: Adjustments to net income

Depreciation expenses

17,000

Loss on sale of investment

10,000

Decrease in accounts receivables

5,000

Decrease in current liabilities

(17,000)

Cash flow from operations

$175,000

Cash flow from investing activities

Sale of investment

12,000

Purchase of equipment

(58,000)

Cash flow used in investing activity

(46,000)

Cash flow from financing activities

0

Cash dividend

(30,000)

Cash flow used in financing activities

(30,000)

Net increase or decrease in cash

99,000

Add: Opening cash Balance

78,000

Ending Cash Balance

$177,000

03

Statement of free cash flow

Particular

Amount $

Cash flow from operations

$175,000

Less: Capital expenditure

(58,000)

Less: Dividend

(30,000)

Free Cash Flow

$87,000

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Most popular questions from this chapter

Each of the following items must be considered in preparing a statement of cash flows. Indicate where each item is to be reported in the statement, if at all. Assume that net income is reported as \(90,000.

(a) Accounts receivable increased from \)34,000 to \(39,000 from the beginning to the end of the year.

(b) During the year, 10,000 shares of preferred stock with a par value of \)100 per share were issued at \(115 per share.

(c) Depreciation expense amounted to \)14,000, and bond premium amortization amounted to \(5,000.

(d) Land increased from \)10,000 to $30,000.

Discuss at least two situations in which estimates could affect the usefulness of the information in the balance sheet.

What is meant by liquidity? Rank the following assets from one to five in order of liquidity.

(a) Goodwill.

(b) Inventory.

(c) Buildings.

(d) Short-term investments.

(e) Accounts receivable.

Patrick Corporation鈥檚 adjusted trial balance contained the following asset accounts at December 31, 2017: Prepaid Rent \(12,000, Goodwill \)50,000, Franchise Fees Receivable \(2,000, Franchises \)47,000, Patents \(33,000, and Trademarks \)10,000. Prepare the intangible assets section of the balance sheet.

Question: P5-1 (L03) (Preparation of a Classified Balance Sheet, Periodic Inventory) Presented below is a list of accounts in alphabetical order.

Accounts Receivable Inventory鈥擡nding

Accumulated Depreciation鈥擝uildings Land

Accumulated Depreciation鈥擡quipment Land for Future Plant Site

Accumulated Other Comprehensive Income Loss from Flood

Advances to Employees Noncontrolling Interest

Advertising Expense Notes Payable (due next year)

Allowance for Doubtful Accounts Paid-in Capital in Excess of Par鈥� preferred stock

Bond Sinking Fund Patents

Bonds Payable Payroll Taxes Payable

Buildings Pension Liability

Cash (in bank) Petty Cash

Cash (on hand) Preferred Stock

Cash Surrender Value of Life Insurance Premium on Bonds Payable

Commission Expense Prepaid Rent

Common Stock Purchase Returns and Allowances

Copyrights Purchases

Debt Investments (trading) Retained Earnings

Dividends Payable Salaries and Wages Expense (sales)

Equipment Salaries and Wages Payable

Freight-In Sales Discounts

Gain on Disposal of Equipment Sales Revenue

Interest Receivable Treasury Stock (at cost)

Inventory鈥擝eginning Unearned Subscriptions Revenue

Instructions Prepare a classified balance sheet in good form. (No monetary amounts are to be shown.)
See all solutions

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