Financial Accounting – Sample 2
Question IV – Cash Flow
The financial statements for Adam Company as of December 31 appear below. Use this page for your calculations and prepare in good form a Statement of Cash Flow for 2013 on the next page (points 20). Using your results, answer the questions on page 8.
| Assets | 2012 | + | – | 2013 |
| Cash | 42,000 | 3500 | 38,500 | |
| Accounts Receivable | 130,000 | 4000 | 126,000 | |
| Inventories | 216,000 | 6000 | 222,000 | |
| Land | 20,000 | 40000 | 60,000 | |
| Plant and Equipment | 872,000 | 19000 | 891,000 | |
| Less: Accumulated Depreciation | (472,000) | -48000 | (520,000) | |
| Net Plant and Equipment | 400,000 | -29000 | 371,000 | |
| Total Assets | 808,000 | 817,500 | ||
| Liabilities and Shareholders’ Equity | ||||
| Accounts payable | 61,000 | 7000 | 68,000 | |
| Salaries payable | 27,000 | 12000 | 15,000 | |
| Interest payable | 9,500 | 2500 | 12,000 | |
| Long-term debt | 234,000 | 9000 | 243,000 | |
| Common Stock | 290,000 | 35000 | 325,000 | |
| Retained Earnings | 186,500 | 32000 | 154,500 | |
| Total | 808,000 | 817,500 | ||
Income Statement |
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| Sales | 1,451,000 | |||
| Cost of goods Sold | 936,000 | |||
| Gross margin | 515,000 | |||
| Selling & Administration Expense | 448,000 | |||
| Interest expense | 24,000 | |||
| Tax expense | 13,000 | |||
| Net Income | 30,000 |
Additional information:
- Expenditures on new Plant and Equipment for 2013 amounted to $60,000.
- Plant and Equipment sold during 2013 at book value of $27,000.
- Adam Company both paid and borrowed on Long-term debt during 2013
Statement of Cash Flow |
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| Cash flow – Operations | ||
| Net Income | 30000 | |
| Add: Depreciation | 62000 | |
| Decrease in account receivables | 4000 | |
| Increase in Inventories | -6000 | |
| Increase in Accounts payable | 7000 | |
| Decrease in Salaries payable | -12000 | |
| Increase in Interest payable | 2500 | |
| Cash from Operating Activities | 87500 | |
| Investing Activities | ||
| Purchase of new plant | -60000 | |
| Sale of Plant | 27000 | |
| Purchase of land | -40000 | |
| Cash used in Investing Activities | -73000 | |
| Financing Activity | ||
| Increase in common stock | 35000 | |
| Borrowed long term debt | 9000 | |
| Dividends paid | -62000 | |
| Cash used in Financing Activities | -18000 | |
| Increase (decrease) in Cash | -3500 | |
| Beginning Cash | 42000 | |
| Ending Cash | 38500 |
Gross value of plant sold = 872000 + 60000 – 891000 = 41000
Accumulated Depreciation on asset sold = 41000 – 27000 = 14000
Depreciation for the year = 520000 + 14000 – 472000 = 62000
Dividends = 186500 + 30000 – 154500 = 62000
Use only gross expenditures for Plant and Equipment and neglect an adjustment due to interest expense
Calculate Free Cash Flow (FCF) = Cash from Operating Activities – Capital Expenditures
=87500 – 73000 = 14500
