P12-7A - Homework Solutions PDF

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Chapter 12 P12-7A Additional data: 1. Depreciation expense was $17,500 2. Dividends declared and paid were $20,000 3. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had accumulated depreciation of $9,500 at the time of sale (a) Prepare statements of cash flows using the indirect method Cash flow from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense Increase in accounts receivable Increase in inventory Increase in accounts payable Decrease in income taxes payable Net cash provided by operating activities Cash flow from investing activities Sale of equipment Net cash used by investing activities Cash flow from financing activities Issuance of common stock Repayment on bonds payable Payment for dividends Net cash used by financing activities Net increase in cash Add cash at beginning of the year Cash at the end of the year

$32,000 $17,500 $(6,000) $(8,000) $4,000 $(1,000)

$6,500 $38,500

$8,500 $8,500 $4,000 $(16,000) $(20,000) $(32,000) $15,000 $20,000 $35,000

(b) Compute free cash flows Free cash flow = (net cash provided by operating activities) – (capital expenditures) – (cash dividends) = (38,500) – (0) – (20,000) = $18,500...