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Statement of Cash Flows for Creative Works Company

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Presented below are the comparative balance sheets for Creative Works Company
as of December 31.

Creative Works Company
Comparative Balance Sheets
31-Dec

Assets 2006 2005
Cash $38,000 $45,000
Accounts receivable $49,500 $52,000
Inventory $153,450 $142,000
Prepaid expenses $15,780 $21,000
Land $100,000 $130,000
Equipment $228,000 $155,000
Accumulated depreciation-equipment $(45,000) $(35,000)
Building $200,000 $200,000
Accumulated depreciation-building $(60,000) $(40,000)
$679,730 $670,000

Liabilities and Stockholders' Equity
Accounts payable $35,730 $40,000
Bonds payable $250,000 $300,000
Common stock, $1 par $200,000 $150,000
Retained earnings $194,000 $180,000
$679,730 $670,000

Additional information:
1. Operating expenses include depreciation expense of $42000.
2. Land was sold for cash at book value.
3. Cash dividends of $24000 were paid.
4. Net income for 2006 was $38000.
5. Equipment was purchased for $95000 cash. In addition, equipment costing $22000 with a book value of $10000 was sold for $8100 cash.
6. Bonds were converted at face value by issuing 50000 shares of $1 par value common stock.
7. Net sales for 2006 totalled $420000.

Instructions:
(a) Prepare a statement of cash flows for the year ended December 31, 2006, using the indirect method.
(b) Compute free cash flow for 2006.

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Solution Preview

a)
Creative Works Company
Cash flow statement for the year ended December 31, 2006

Cash flow from Operating activities:
Net income 38,000
Add back:
Depreciation 42,000
Loss on sale of equipment 1,900
Cash flow before working capital changes 81,900
Working capital ...

Solution Summary

A cash flow statement is prepared.

$2.19