Question

Megan Corporation's net income last year was $102,000. Changes in the company's balance sheet accounts for the year appear below:

	Increases (Decreases)
Asset and Contra-Asset Accounts:
Cash and cash equivalents	$	(6,200	)
Accounts receivable	$	(18,000	)
Inventory	$	5,000
Prepaid expenses	$	(9,800	)
Long-term investments	$	84,000
Property, plant and equipment	$	63,000
Accumulated depreciation	$	66,000
Liability and Equity Accounts:
Accounts payable	$	0
Accrued liabilities	$	17,440
Income taxes payable	$	(12,240	)
Bonds payable	$	(36,000	)
Common stock	$	24,000
Retained earnings	$	58,800

The company paid a cash dividend of $43,200 and it did not dispose of any long-term investments or property, plant, and equipment. The company did not issue any bonds payable or repurchase any of its own common stock. The following questions pertain to the company's statement of cash flows.

The free cash flow for the year was:

Multiple Choice

• $152,800

• $292,240

• $89,800

• $133,000

Answer 1

$89,800
Free cash flow computation:
Net cash provided by operating activities		$196,000
Capital expenditures	($63,000)
Dividends	($43,200)	($106,200)
Free cash flow		$89,800
Net Income	$102,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation Expense	$66,000
Decrease in Accounts Receivable	$18,000
Increase in Inventory	($5,000)
Increase in Prepaid Insurance	$9,800
Increase in Accrued Liabilities	$17,440
Increase in Income Taxes Payable	($12,240)
Net cash flows provided by operating activities		$196,000