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Statement of Cash Flows for Creative Works Company

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.

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