Apex Company Statement of Cash Flows—Indirect Method Operating activities: Net income $ 40,000 Adjustments to convert net income to cash basis: Depreciation $ 22,000 Increase in accounts receivable (60,000 ) Increase in inventory (25,000 ) Decrease in prepaid expenses 9,000 Increase in accounts payable 55,000 Decrease in accrued liabilities (12,000 ) Increase in income taxes payable 5,000 (6,000 ) Net cash provided by (used in) operating activities 34,000 Investing activities: Proceeds from the sale of equipment 14,000 Loan to Thomas Company (40,000 ) Additions to plant and equipment (110,000 ) Net cash provided by (used in) investing activities (136,000 ) Financing activities: Increase in bonds payable 90,000 Increase in common stock 40,000 Cash dividends (30,000 ) Net cash provided by (used in) financing activities 100,000 Net decrease in cash and cash equivalents (2,000 ) Beginning cash and cash equivalents 27,000 Ending cash and cash equivalents $ 25,000 Required: Compute Apex Company’s free cash flow for the current year. (Negative amount should be indicated by a minus sign.)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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here is the correct solution
Apex Company prepared the statement of
| Apex Company Statement of Cash Flows—Indirect Method |
||||||
| Operating activities: | ||||||
| Net income | $ | 40,000 | ||||
| Adjustments to convert net income to cash basis: | ||||||
| $ | 22,000 | |||||
| Increase in accounts receivable | (60,000 | ) | ||||
| Increase in inventory | (25,000 | ) | ||||
| Decrease in prepaid expenses | 9,000 | |||||
| Increase in accounts payable | 55,000 | |||||
| Decrease in accrued liabilities | (12,000 | ) | ||||
| Increase in income taxes payable | 5,000 | (6,000 | ) | |||
| Net cash provided by (used in) operating activities | 34,000 | |||||
| Investing activities: | ||||||
| Proceeds from the sale of equipment | 14,000 | |||||
| Loan to Thomas Company | (40,000 | ) | ||||
| Additions to plant and equipment | (110,000 | ) | ||||
| Net cash provided by (used in) investing activities | (136,000 | ) | ||||
| Financing activities: | ||||||
| Increase in bonds payable | 90,000 | |||||
| Increase in common stock | 40,000 | |||||
| Cash dividends | (30,000 | ) | ||||
| Net cash provided by (used in) financing activities | 100,000 | |||||
| Net decrease in cash and cash equivalents | (2,000 | ) | ||||
| Beginning cash and cash equivalents | 27,000 | |||||
| Ending cash and cash equivalents | $ | 25,000 | ||||
Required:
Compute Apex Company’s
Garrison_16e_Rechecks_2019_11_21
Explanation
Free cash flow computation:
| Net cash provided by operating activities | $ | 34,000 | ||||
| Less: | ||||||
| Capital expenditures | $ | (110,000 | ) | |||
| Dividends | (30,000 | ) | (140,000 | ) | ||
| Free cash flow | $ | (106,000 | ) | |||
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