What is its expected free cash flow?

Preparing the statement of cash flows—indirect method, evaluating cash flows, and measuring free cash flows

The comparative balance sheet of Morgensen Educational Supply at December 31, 2012, reported the following:

December 31,

2012

2011

Current assets:

Cash and cash equivalents

$ 89,600

$ 24,500

Accounts receivable

14,500

21,900

Inventories

62,800

60,000

Current liabilities:

Accounts payable

30,100

27,600

Accrued liabilities

11,100

11,600

Morgensen’s transactions during 2012 included the following:

Payment of cash dividend

$ 14,200

Depreciation expense

$ 17,300

Purchase of equipment

55,200

Purchase of building

103,000

Issuance of long-term note payable to borrow cash

45,000

Net income

57,600

Issuance of common stock for cash

111,000

Requirements

1. Prepare the statement of cash flows of Morgensen Educational Supply for the year ended December 31, 2012. Use the indirect method to report cash flows from operating activities.

2. Evaluate Morgensen’s cash flows for the year. Mention all three categories of cash flows and give the reason for your evaluation.

3. If Morgensen plans similar activity for 2013, what is its expected free cash flow?

 

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