Horse Heaven Farm began 20X6 w
Horse Heaven Farm began 20X6 with cash of 180,000. During theyear, Horse Heaven earned service revenue of 600,000 and collected480,000 from customers. Expenses for the year totaled 330,000, with300,000 paid in cash to suppliers and employees. Horse heaven alsopaid 138,000 to purchase equipment and a cash dividend of 47,000 toshareholders. During 20X6, Horse Heaven borrowed 25,000 by issuinga note payable. Prepare the company’s statement of cash flows forthe year. Format operating activities by the direct method.Calculate Horse’s free cash flow and cash realization ratio.
Answer:
| Horse Heaven Farm | ||
| Statement ofCash Flows | ||
| For the YearEnded December 31, 2017 | ||
| Cash Flows from Operating Activities | ||
| Cash receipts from customers | 480000 | |
| Cash paid to suppliers and employees | -300000 | |
| Net cash provided by operatingactivities | 180000 | |
| Cash Flows from Investing Activities | ||
| Purchase of equipment | -138000 | |
| Net cash used by investing activities | -138000 | |
| Cash Flows from Financing Activities | ||
| Borrowing against note payable | 25000 | |
| Payment of cash dividends | -47000 | |
| Net cash used by financing activities | -22000 | |
| Net increase in cash | 20000 | |
| Cash balance at the beginning of 20X6 | 180000 | |
| Cash balance at the end of 20X6 | 200000 | |
Free cash flow = Cash flow from operations – Capitalexpenditures – Dividends = $180000 – $138000 = $42000
Cash realization ratio = Cash flow from operations/Net income =$180000/$270000 = 0.67
Net income = $600000 – $330000 = $270000
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