Problem 17-7A Presented below are the financial statements of Nosker Company. NO
ID: 2452968 • Letter: P
Question
Problem 17-7A
Presented below are the financial statements of Nosker Company.
NOSKER COMPANY Income Statement For the year Ended December 31, 2014
Additional data:
1. Dividends declared and paid were $30,390.
2. During the year equipment was sold for $7,750 cash. This equipment cost $18,050 originally and had a book value of $7,750 at the time od sale.
3. All depreciation expense, $15,750, is in the operating expenses.
4. All sales and purchases are on account.
A. Prepare a statement of cash flows using the indirect method.
B. Compute free cash flow.
NOSKER COMPANY Comparative Balance Sheets December 31 Assets 2014 2013 cash $34,140 $20,110 Accounts receivable 32,820 19,060 Inventory 26,510 20,150 Equipment 59,770 77,820 Accumulated depreciation equipment (29,050) (23,600) Total $124,190 $113,540 Liabilties and Stockholders' Equity Accounts payable $28,230 $16,340 Income taxes payable 7,340 8,020 Bonds Payable 27,730 32,740 Common Stock 18,420 13,700 Retained Earnings 42,470 42,470 Total $124,190 $113,540Explanation / Answer
Answer to Part A:
Statement of cash flows using the indirect method:
Particulars
Amount
Cash from operating Activities
Net profit
$30120
Add: Depreciation
Interest Paid
Income Tax Expense
$15750
$3150
$8720
Less: Increase in Inventory (26510-20150)
-$6360
Cash Operating activities before working capital adjustments, and taxes
$51380
Working Capital Adjustments
Add: Increase in Creditors (28230-16340)
$11890
Less: Increase in Debtors (32820-19060)
-$13760
Cash from operating activities before taxes
$49510
Less: Taxes
-$9400
Cash from operating activities
$40110
Cash from investing activities
Add: Sale of Equipment
$7750
Less:
-
Cash from Investing Activities
$47860
Cash from financing Activities
Add: Issue of Common Stock (18420-13700)
$4720
Less: Dividend paid
Interest Paid
Bonds redeemed (32740-27730)
-$30390
-$3150
-$5010
Cash from financing activities
-$33830
Net Increase / decrease in cash
$14030
Opening Cash Balance
$20110
Closing Cash Balance
$34140
Answer to Part B:
Calculation of Free Cash Flow:
Free Cash Flow
=Operating Cash flow – Capital Expenditure
=$40110 - 0
=$40110 - 0
=$40110
Free Cash Flow = $40110
Particulars
Amount
Cash from operating Activities
Net profit
$30120
Add: Depreciation
Interest Paid
Income Tax Expense
$15750
$3150
$8720
Less: Increase in Inventory (26510-20150)
-$6360
Cash Operating activities before working capital adjustments, and taxes
$51380
Working Capital Adjustments
Add: Increase in Creditors (28230-16340)
$11890
Less: Increase in Debtors (32820-19060)
-$13760
Cash from operating activities before taxes
$49510
Less: Taxes
-$9400
Cash from operating activities
$40110
Cash from investing activities
Add: Sale of Equipment
$7750
Less:
-
Cash from Investing Activities
$47860
Cash from financing Activities
Add: Issue of Common Stock (18420-13700)
$4720
Less: Dividend paid
Interest Paid
Bonds redeemed (32740-27730)
-$30390
-$3150
-$5010
Cash from financing activities
-$33830
Net Increase / decrease in cash
$14030
Opening Cash Balance
$20110
Closing Cash Balance
$34140