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Q26E

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 780

Short Answer

Use the Rouse Exercise Equipment data in Exercises E14-23 and E14-24. Rouse plans to purchase a truck for $23,000 and a forklift for $125,000 next year. In addition, it plans to pay cash dividends of $3,500. Assuming Rouse plans similar activity for 2019, what would be the amount of free cash flow?

The free cash flow amount of the company is $12,000.

See the step by step solution

Step by Step Solution

Step-by-Step SolutionStep 1: Free Cash Flow

Free cash flow means the cash produced by the company after considering and studying the cash outflows for running its business operations and keeping up its capital assets.

Step 2: Calculation of free cash flows

Most popular questions for Business-studies Textbooks

Rouse Exercise Equipment, Inc. reported the following financial statements for 2018:

ROUSE EXERCISE EQUIPMENT, INC.

Income statement

Year ended December 31, 2018

Net sales revenue

$713,000

Cost of goods sold

342,000

Gross Profit

371,000

Operating expense:

  • Depreciation expense

54,000

  • Other operatin expenses

210,000

Net Income

$107,000

ROUSE EXERCISE EQUIPMENT, INC.

Comparative Balance sheet

December 31, 2018 and 2017

2018

2017

Assets

Current assets:

Cash

17,000

16,000

Accounts receivable

57,000

46,000

Merchandise inventory

79,000

90,000

Long term assets:

Plant assets

260,500

216,400

Accumulated depreciation-Plant assets

(38,500)

(32,400)

Investments

96,000

73,000

Total assets

$471,000

$409,000

Liabilities

Current liabilities

Accounts payable

72,000

71,000

Salaries payable

3,000

5,000

Long-term liabilities

Notes payable

61,000

69,000

Total liabilities

136,000

145,000

Stockholder’s equity

Common stock, no par

45,000

34,000

Retained earnings

290,000

230,000

Total stockholder’s equity

335,000

264,000

Total liabilities and stockholder’s equity

$471,000

$409,000

Requirements

1. Compute the amount of Rouse Exercise’s acquisition of plant assets. Assume the acquisition was for cash. Rouse Exercise disposed of plant assets at book value. The cost and accumulated depreciation of the disposed asset was $47,900. No cash was received upon disposal.

2. Compute new borrowing or payment of long-term notes payable, with Rouse

Exercise having only one long-term notes payable transaction during the year.

3. Compute the issuance of common stock with Rouse Exercise having only one

common stock transaction during the year.

4. Compute the payment of cash dividends.

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