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Chapter 5: Q27Q. (page 238)

Net income for the year for Tanizaki, Inc. was \(750,000, but the statement of cash flows reports that net cash provided by operating activities was \)860,000. Tanizaki also reported capital expenditures of \(75,000 and paid dividends in the amount of \)30,000. Compute Tanizaki’s free cash flow

Short Answer

Expert verified

The free cash flow of the business entity is$755,000.

Step by step solution

01

Definition of Liquidity

Liquidity is the measure reflecting the capacity that a business entity possesses for repaying the obligations that will become due in a short period is known as liquidity.

02

Calculation of Free Cash Flow

Particular

Amount $

Net cash provided by operating activities

$860,000

Less: Capital expenditure

(75,000)

Less: Cash dividend

(30,000)

Free Cash Flow

$755,000

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Most popular questions from this chapter

(Preparation of a Classified Balance Sheet) Assume that Denis Savard Inc. has the following accounts at the end of the current year.

1. Common Stock.

2. Discount on Bonds Payable.

3. Treasury Stock (at cost).

4. Notes Payable (short-term).

5. Raw Materials.

6. Preferred Stock Investments (long-term).

7. Unearned Rent Revenue.

8. Work in Process.

9. Copyrights.

10. Buildings.

11. Notes Receivable (short-term).

12. Cash.

13. Salaries and Wages Payable.

14. Accumulated Depreciation—Buildings.

15. Restricted Cash for Plant Expansion.

16. Land Held for Future Plant Site.

17. Allowance for Doubtful Accounts.

18. Retained Earnings.

19. Paid-in Capital over Par—Common Stock.

20. Unearned Subscriptions Revenue.

21. Receivables—Officers (due in one year).

22. Inventory (finished goods).

23. Accounts Receivable.

24. Bonds Payable (due in 4 years).

25. Noncontrolling Interest.

Instructions

Prepare a classified balance sheet in good form. (No monetary amounts are necessary.)

The current assets and current liabilities sections of the balance sheet of Allessandro Scarlatti Company appear as follows.

ALLESSANDRO SCARLATTI COMPANY

BALANCE SHEET PARTIAL

December 31, 2017

Cash

\(40,000

Account payable

\)61,000

Accounts receivables

\(89,000

Note payable

67,000

Less: Allowance for doubtful accounts

(7,000)

82,000

\)128,000

Inventory

171,000

Prepaid expenses

9,000

\(302,000

The following errors in the corporation’s accounting have been discovered:

1. January 2018 cash disbursements entered as of December 2017 included payments of accounts payable in the amount of \)39,000, on which a cash discount of 2% was taken.

2. The inventory included \(27,000 of merchandise that had been received at December 31 but for which no purchase invoices had been received or entered. Of this amount, \)12,000 had been received on consignment; the remainder was purchased f.o.b. destination, terms 2/10, n/30.

3. Sales for the first four days in January 2018 in the amount of \(30,000 were entered in the sales journal as of December 31, 2017. Of these, \)21,500 were sales on account and the remainder were cash sales.

4. Cash, not including cash sales, collected in January 2018 and entered as of December 31, 2017, totaled \(35,324. Of this amount, \)23,324 was received on account after cash discounts of 2% had been deducted; the remainder represented the proceeds of a bank loan.

Instructions

(a) Restate the current assets and current liabilities sections of the balance sheet in accordance with good accounting practice. (Assume that both accounts receivable and accounts payable are recorded gross.)

(b) State the net effect of your adjustments on Allessandro Scarlatti Company’s retained earnings balance.

Grant Wood Corporation’s balance sheet at the end of 2016 included the following items.

Current assets (\(Cash 82,000)

\)235,000

Current liabilities

\(150,000

Land

30,000

Bond payable

100,000

Building

120,000

Common stock

180,000

Equipment

90,000

Retained earnings

44,000

Accumulated depreciation – Building

(30,000)

Accumulated depreciation – Equipment

(11,000)

Patents

40,000

Total

\)474,000

Total

\(474,000

The following information is available for 2017.

1. Net income was \)55,000.

2. Equipment (cost \(20,000 and accumulated depreciation \)8,000) was sold for \(10,000.

3. Depreciation expense was \)4,000 on the building and \(9,000 on equipment.

4. Patent amortization was \)2,500.

5. Current assets other than cash increased by \(29,000. Current liabilities increased by \)13,000.

6. An addition to the building was completed at a cost of \(27,000.

7. A long-term investment in stock was purchased for \)16,000.

8. Bonds payable of \(50,000 were issued.

9. Cash dividends of \)30,000 were declared and paid.

10. Treasury stock was purchased at a cost of $11,000.

Instructions

(Show only totals for current assets and current liabilities.)

(a) Prepare a statement of cash flows for 2017.

(b) Prepare a balance sheet at December 31, 2017.

(L03) (Preparation of a Classified Balance Sheet, Periodic Inventory) Presented below is a list of accounts in alphabetical order.

Accounts Receivable-Inventory-Ending

Accumulated Depreciation—Buildings-Land

Accumulated Depreciation—Equipment Land for Future Plant Site

Accumulated Other Comprehensive Income - Loss from Flood

Advances to Employees- Noncontrolling Interest

Advertising Expense - Notes Payable (due next year)

Allowance for Doubtful Accounts - Paid-in Capital in Excess of Par— preferred stock

Bond Sinking Fund -Patents

Bonds Payable - Payroll Taxes Payable

Buildings - Pension Liability

Cash (in bank) - Petty Cash

Cash (on hand) - Preferred Stock

Cash Surrender Value of Life Insurance -Premium on Bonds Payable

Commission Expense- Prepaid Rent

Common Stock- Purchase Returns and Allowances

Copyrights - Purchases

Debt Investments (trading)- Retained Earnings

Dividends Payable- Salaries and Wages Expense (sales)

Equipment - Salaries and Wages Payable

Freight-In Sales- Discounts

Gain on Disposal of Equipment- Sales Revenue

Interest Receivable - Treasury Stock (at cost)

Inventory—Beginning Unearned Subscriptions Revenue

Instructions Prepare a classified balance sheet in good form. (No monetary amounts are to be shown.)

What types of contractual obligations must be disclosed in great detail in the notes to the balance sheet? Why do you think these detailed provisions should be disclosed?
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