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Chapter 5: Q12BE. (page 239)

Keyser Beverage Company reported the following items in the most recent year.

Net income $40,000

Dividends paid 5,000

Increase in accounts receivable 10,000

Increase in accounts payable 7,000

Purchase of equipment (capital expenditure) 8,000

Depreciation expense 4,000

Issue of notes payable 20,000

Compute net cash provided by operating activities, the net change in cash during the year, and free cash flow.

Short Answer

Expert verified

The Free Cash flow of the business entity is $28,000.

Step by step solution

01

Definition of Notes Payable

The liability account reflects the amount borrowed by the business entity through a written promise to repay in a future period along with accrued interest.

02

Cashflow from the operation and net changes in the cash

Particular

Amount $

Net income

$40,000

Add or less: adjustments to net income

Depreciation expenses

4,000

Increase in accounts receivables

(10,000)

Increase in account payable

7,000

Cash flow from operating activities

$41,000

Investing activities:

Purchase of equipment

(8,000)

Financing activities:

Issue of notes payable

20,000

Dividend paid

(5,000)

Net increase in cash during the year

$48,000

03

Free Cashflow

Particular

Amount $

Cash flow from operating activities

$41,000

Less: Capital expenditure

(8,000)

Less: Dividend paid

(5,000)

Free Cash Flow

$28,000

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