Megan Corporation\'s net income last year was $98,000. Changes in the company\'s
ID: 2517423 • Letter: M
Question
Megan Corporation's net income last year was $98,000. Changes in the company's balance sheet accounts for the year appear below:
The company paid a cash dividend of $36,000 and it did not dispose of any long-term investments or property, plant, and equipment. The company did not issue any bonds payable or repurchase any of its own common stock. The following questions pertain to the company's statement of cash flows.
The free cash flow for the year was:
A) $87,000
B) $269,000
C) $142,000
Increases (Decreases) Asset and Contra-Asset Accounts: Cash ($3,000) Accounts receivable ($14,000) Inventory $3,000 Prepaid expenses ($7,000) Long-term investments $80,000 Property, plant and equipment $55,000 Accumulated depreciation $58,000 Liability and Equity Accounts: Accounts payable $0 Accrued liabilities $15,000 Income taxes payable ($11,000) Bonds payable ($30,000) Common stock $20,000 Retained earnings $62,000Explanation / Answer
Cash Flows from Operating Activities: Net income 98000 Adjustments to reconcile net income to Net cash provided by operating activities Depreciation expense 58000 Decrease in receivables 14000 Increase in inventory -3000 Decrease in prepaid expenses 7000 Increase in accounts payable 0 Increase in accrued liabilities 15000 Decrease in Income taxes payable -11000 80000 Net cash provided by operating activities 178000 Free cash flow = Net cash provided by operating activities -Capital expenditures-Cash dividends = 178000-55000-36000= $87000 Option A is correct