Chapter 5: Q28Q. (page 238)
What is the purpose of a free cash flow analysis?
Free cash flow is calculated with the primary purpose of depicting the availability of cash to purchase more fixed assets or investments.
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What are some of the techniques of disclosure for the balance sheet?
Perez Company reported an increase in inventories in the past year. Discuss the effect of this change on the current ratio (current assets ÷ current liabilities). What does this tell a statement user about Perez Company’s liquidity?
The comparative balance sheets of Constantine Cavamanlis Inc. at the beginning and the end of the year 2017 are as follows.
CONSTANTINE CAVAMALIS INC | |||
BALANCE SHEETS | |||
Assets | Dec 31, 2017 | Jan 1, 2017 | Inc./Dec. |
Cash | \(45,000 | \)13,000 | \(32,000 Inc. |
Accounts receivable | 91,000 | 88,000 | 3,000 Inc. |
Equipment | 39,000 | 22,000 | 17,000 Inc. |
Less: Accumulated depreciation – Equipment | (17,000) | (11,000) | 6,000 Inc. |
Total | 158,000 | \)112,000 | |
Liabilities and Stockholder’s equity | |||
Account payable | \(20,000 | \)15,000 | 5,000 Inc. |
Common stock | 100,000 | 80,000 | 20,000 Inc |
Retained earnings | 38,000 | 17,000 | 21,000 Inc. |
Total | \(158,000 | \)112,000 |
Net income of \(44,000 was reported, and dividends of \)23,000 were paid in 2017. New equipment was purchased and none was sold.
Instructions
Prepare a statement of cash flows for the year 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.)
Ames Company reported 2017 net income of \(151,000. During 2017, accounts receivable increased by \)13,000 and accounts payable increased by \(9,500. Depreciation expense was \)44,000. Prepare the cash flows from operating activities section of the statement of cash flows.
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