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:
Cash and cash equivalents
Morgensen’s transactions during 2012 included the following:
Payment of cash dividend
Purchase of equipment
Purchase of building
Issuance of long-term note payable to borrow cash
Issuance of common stock for cash
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?