Question

Comparative financial statement data for Carmono Company follow:

	This Year		Last Year
Assets
Cash	$	7.50	$	14.00
Accounts receivable		50.00		43.00
Inventory		92.50		79.20
Total current assets		150.00		136.20
Property, plant, and equipment		231.00		194.00
Less accumulated depreciation		45.60		34.20
Net property, plant, and equipment		185.40		159.80
Total assets	$	335.40	$	296.00
Liabilities and Stockholders’ Equity
Accounts payable	$	55.50	$	46.00
Common stock		118.00		91.00
Retained earnings		161.90		159.00
Total liabilities and stockholders’ equity	$	335.40	$	296.00

For this year, the company reported net income as follows:

Sales	$	850.00
Cost of goods sold		510.00
Gross margin		340.00
Selling and administrative expenses		320.00
Net income	$	20.00

This year Carmono declared and paid a cash dividend. There were no sales of property, plant, and equipment during this year. The company did not repurchase any of its own stock this year.

Carmono CompanyStatement of Cash Flows - Indirect MethodFor This Year Ended December 31Operating activities:Net income$20.00Adjustments to convert net income to a cash basis:Depreciation$11.40Increase in accounts receivable(7.00)Increase in inventory(13.30)Increase in accounts payable9.500.60Net cash provided by operating activities20.60Investing activities:Increase in plant and equipment(37.00)Net cash used in investing activities(37.00)Financing activities:Increase in common stock27.00Cash dividends(17.10)Net cash provided by financing activities9.90Net decrease in cash(6.50)Beginning cash and cash equivalents14.00Ending cash and cash equivalents$7.50

2.	Compute Carmono’s free cash flow for this year. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to 2 decimal places.)

Free cash flow$

3.

Changes in various accounts and gains and losses on the sale of assets during the year for Argon Company are given below:

Item		Amount
Accounts receivable	$	79,000	decrease
Inventory	$	120,000	increase
Prepaid expenses	$	3,500	decrease
Accounts payable	$	41,000	decrease
Accrued liabilities	$	9,600	increase
Income taxes payable	$	15,700	increase
Sale of equipment	$	8,100	gain
Sale of long-term investments	$	12,200	loss

Required:

For each item, indicate whether the dollar amount should be added to or deducted from net income under the indirect method when computing the net cash provided by operating activities for the year.

Item	Amount	Effect
Accounts receivable
Inventory
Prepaid expenses
Accounts payable
Accrued liabilities
Income taxes payable
Sale of equipment
Sale of long-term investments

4.

Apex Company prepared the statement of cash flows for the current year that is shown below:

Apex Company Statement of Cash Flows—Indirect Method
Operating activities:
Net income			$	41,500
Adjustments to convert net income to cash basis:
Depreciation	$	20,100
Increase in accounts receivable		(61,500)
Increase in inventory		(25,100)
Decrease in prepaid expenses		9,400
Increase in accounts payable		54,300
Decrease in accrued liabilities		(10,100)
Increase in income taxes payable		3,300		(9,600)
Net cash provided by operating activities				31,900
Investing activities:
Proceeds from the sale of equipment		15,200
Loan to Thomas Company		(41,900)
Additions to plant and equipment		(121,800)
Net cash used for investing activities				(148,500)
Financing activities:
Increase in bonds payable		88,800
Increase in common stock		38,700
Cash dividends		(28,400)
Net cash provided by financing activities				99,100
Net decrease in cash				(17,500)
Beginning cash balance				27,200
Ending cash balance			$	9,700

Required:

Compute Apex Company’s free cash flow for the current year. (Negative amount should be indicated by a minus sign.)

Free Cash Flow

5.

For the just completed year, Hanna Company had net income of $95,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were as follows:

	December 31
	End of Year		Beginning of Year
Current assets:
Cash	$	59,000	$	80,000
Accounts receivable	$	164,000	$	184,000
Inventory	$	448,000	$	346,000
Prepaid expenses	$	11,500	$	15,000
Current liabilities:
Accounts payable	$	366,000	$	392,000
Accrued liabilities	$	8,000	$	13,000
Income taxes payable	$	32,000	$	25,000

The Accumulated Depreciation account had total credits of $42,000 during the year. Hanna Company did not record any gains or losses during the year.

Required:

Use the indirect method to determine the net cash provided by (or used in) operating activities for the year. (List any deduction in cash and cash outflows as negative amounts.)