Chapter 14: Q14-14RQ (page 769)
Question: What is free cash flow, and how is it calculated?
Answer
Free cash flow is the cashavailable with the company for new opportunities.
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Computing cash flows for investing and financing activities Consider the following facts for Java Jolt:
Question: What does the statement of cash flows report?
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?
Preparing the statement of cash flows—indirect method, evaluating cash flows, and measuring free cash flows
The comparative balance sheet of Robeson Educational Supply at December 31, 2018, reported the following:
2018 2017 Current Assets: Cash \( 83,900 \) 20,500 Accounts Receivable 14,500 21,800 Merchandise Inventory 61,800 60,400 Current Liabilities: Accounts Payable 29,600 28,100 Accrued Liabilities 10,500 11,900 Robeson’s transactions during 2018 included the following:
Payment of cash dividends \( 21,200
Depreciation expense \) 17,400
Purchase of equipment with cash 54,400
Purchase of building with cash 103,000
Issuance of long-term notes payable to borrow cash 44,000
Net income 63,600
Issuance of common stock for cash 111,000
Requirements
1. Prepare the statement of cash flows of Robeson Educational Supply for the year ended December 31, 2018. Use the indirect method to report cash flows from operating activities.
2. Evaluate Robeson’s cash flows for the year. Mention all three categories of cash flows, and give the reason for your evaluation.
3. If Robeson plans similar activity for 2018, what is its expected free cash flow?
Question: Preparing the statement of cash flows—indirect method Use the Preston Media Corporation data in Short Exercise S14-7 and the results you calculated from the requirements. Prepare Preston Media’s statement of cash flows— indirect method—for the year ended December 31, 2018.
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