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Q12BE.

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Intermediate Accounting (Kieso)
Found in: Page 239

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Short Answer

Keyser Beverage Company reported the following items in the most recent year.

Net income $40,000

Dividends paid 5,000

Increase in accounts receivable 10,000

Increase in accounts payable 7,000

Purchase of equipment (capital expenditure) 8,000

Depreciation expense 4,000

Issue of notes payable 20,000

Compute net cash provided by operating activities, the net change in cash during the year, and free cash flow.

The Free Cash flow of the business entity is $28,000.

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Step by Step Solution

Definition of Notes Payable

The liability account reflects the amount borrowed by the business entity through a written promise to repay in a future period along with accrued interest.

Cashflow from the operation and net changes in the cash

Particular

Amount $

Net income

$40,000

Add or less: adjustments to net income

Depreciation expenses

4,000

Increase in accounts receivables

(10,000)

Increase in account payable

7,000

Cash flow from operating activities

$41,000

Investing activities:

Purchase of equipment

(8,000)

Financing activities:

Issue of notes payable

20,000

Dividend paid

(5,000)

Net increase in cash during the year

$48,000

Free Cashflow

Particular

Amount $

Cash flow from operating activities

$41,000

Less: Capital expenditure

(8,000)

Less: Dividend paid

(5,000)

Free Cash Flow

$28,000

Most popular questions for Business-studies Textbooks

(Classification of Balance Sheet Accounts) Assume that Fielder Enterprises uses the following headings on its balance sheet.

(a) Current assets

(g) Long-term liabilities

(b) Investments

(h) Capital stock

(c) Property, plant, and equipment

(i) Equity attribute to non-controlling interest

(d) Intangible assets

(i) paid-in-capital in excess of par

(e) Other assets

(k) Retained earnings

(f) Current liabilities

Instructions

Indicate by letter how each of the following usually should be classified. If an item should appear in a note to the financial statements, use the letter “N” to indicate this fact. If an item need not be reported at all on the balance sheet, use the letter “X.”

1. Prepaid insurance.

2. Stock owned in affiliated companies.

3. Unearned service revenue.

4. Advances to suppliers.

5. Unearned rent revenue.

6. Preferred stock.

7. Additional paid-in capital on preferred stock.

8. Copyrights.

9. Petty cash fund.

10. Sales taxes payable.

11. Accrued interest on notes receivable.

12. Twenty-year issue of bonds payable that will mature within the next year. (No sinking fund exists, and refunding is not planned.)

13. Machinery retired from use and held for sale.

14. Fully depreciated machine still in use.

15. Accrued interest on bonds payable.

16. Salaries that company budget shows will be paid to employees within the next year.

17. Discount on bonds payable. (Assume related to bonds payable in item 12.)

18. Accumulated depreciation—buildings.

19. Shares held by non-controlling stockholders.

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