15E
Question
Presented below is a condensed version of the comparative balance sheets for Zubin Mehta Corporation for the last two years at December 31.
| 2017 | 2016 |
Cash | \(177,000 | \)78,000 |
Accounts receivables | 180,000 | 185,000 |
Investment | 52,000 | 74,000 |
Equipment | 298,000 | 240,000 |
Accumulated depreciation | (106,000) | (89,000) |
Current liabilities | 134,000 | 151,000 |
Common stock | 160,000 | 160,000 |
Retained earnings | 307,000 | 177,000 |
Additional information:
Investments were sold at a loss of \(10,000; no equipment was sold; cash dividends paid were \)30,000; and net income was $160,000.
Instructions
(a) Prepare a statement of cash flows for 2017 for Zubin Mehta Corporation.
(b) Determine Zubin Mehta Corporation’s free cash flow.
Step-by-Step Solution
VerifiedThe free cash flow of the business entity is $87,000.
Earnings of the business entity held for some re-investment in the future period or to distribute as dividend to the shareholders is known as retained earnings.
Particular | Amount $ | Amount $ |
Cash flow from operations |
|
|
Net income | $160,000 |
|
Add or less: Adjustments to net income |
|
|
Depreciation expenses | 17,000 |
|
Loss on sale of investment | 10,000 |
|
Decrease in accounts receivables | 5,000 |
|
Decrease in current liabilities | (17,000) |
|
Cash flow from operations |
| $175,000 |
|
|
|
Cash flow from investing activities |
|
|
Sale of investment | 12,000 |
|
Purchase of equipment | (58,000) |
|
Cash flow used in investing activity |
| (46,000) |
|
|
|
Cash flow from financing activities |
| 0 |
Cash dividend | (30,000) |
|
Cash flow used in financing activities |
| (30,000) |
Net increase or decrease in cash |
| 99,000 |
Add: Opening cash Balance |
| 78,000 |
Ending Cash Balance |
| $177,000 |
Particular | Amount $ |
Cash flow from operations | $175,000 |
Less: Capital expenditure | (58,000) |
Less: Dividend | (30,000) |
Free Cash Flow | $87,000 |