15E Presented below is a condensed v... [FREE SOLUTION]

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

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.

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

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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(a) Debt Investments.	(h)Interest Payable.
(b) Treasury Stock.	(i) Deficit.
(c) Common Stock.	(j) Equity Investments(ownership stake of less than 20%).
(d) Dividends Payable.	(k) Income Taxes Payable.
(e) Accumulated Depreciation鈥擡quipment.	(l) Unearned Subscriptionsrevenue.
(f) Construction in Process.	(m) Work in Process.
(g) Petty Cash.	(n) Salaries and WagesPayable.

LANSBURY INC.
BALANCE SHEET
DECEMBER 31, 2016
Cash	\(20,000	Account payable	\)30,000
Accounts receivables	21,200	Note payable	41,000
Investment	32,000	Common stock	100,000
Plant assets (net)	81,000	Retained earnings	23,200
Land	40,000
	\(194,200		\)194,200

Current assets (\(Cash 82,000)	\)235,000	Current liabilities	\(150,000
Land	30,000	Bond payable	100,000
Building	120,000	Common stock	180,000
Equipment	90,000	Retained earnings	44,000
Accumulated depreciation 鈥� Building	(30,000)
Accumulated depreciation 鈥� Equipment	(11,000)
Patents	40,000
Total	\)474,000	Total	\(474,000

Particular	Debit	Credit
Cash	\(197,000
Sales Revenue		\)8,100,000
Debt investment (trading) (at cost \(145,000)	153,000
Cost of goods sold	4,800,000
Debt investment (long-term)	299,000
Equity Investment (long-term)	277,000
Notes payable (Short-term)		90,000
Account payable		455,000
Selling expenses	2,000,000
Investment revenue		63,000
Land	260,000
Buildings	1,040,000
Dividend payable		136,000
Accrued Liabilities		96,000
Accounts Receivable	435,000
Accumulated depreciation 鈥� Building		152,000
Allowance for doubtful accounts		25,000
Administrative expenses	900,000
Interest expenses	211,000
Inventory	597,000
Gain		80,000
Notes payable		900,000
Equipment	600,000
Bonds payable		1,000,000
Accumulated depreciation 鈥� Equipment		60,000
Franchises	160,000
Common stock		1,000,000
Treasury stock	191,000
Patents	195,000
Retained Earnings		78,000
Paid-in-capital in excess of par		80,0000
Total	\)12,315,000	$12,315,000

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Short Answer

Step by step solution

Definition of Retained Earnings

Statement of cash flow

Statement of free cash flow

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	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