Financial Accounting: An Integrated Statements Approach, 2nd Edition

612 Chapter 13 Statement of Cash Flows

Exercise 13-29 An annotated statement of cash flows for Sara Lee Corporationis shown below.

Calculate free cash flow

Goal 4

ACCOUNTING APPLICATION PROBLEMS

The comparative balance sheet of Winner’s Edge Sporting Goods, Inc., for December 31, 2007

and 2006, is at the top of the following page.

The following additional information was taken from the records:

a. The investments were sold for $132,000 cash.

b. Equipment and land were acquired for cash.

c. There were no disposals of equipment during the year.

d. The common stock was issued for cash.

e. There was a $180,600 credit to Retained Earnings for net income.

f. There was a $56,000 debit to Retained Earnings for cash dividends declared.

Instructions

Prepare a statement of cash flows, using the indirect method of presenting cash flows from

operating activities.

Problem 13-1A

Statement of cash flows—

indirect method

Goal 2

Net cash flow from

operating activities, $163,300

Sara Lee Corporation

Statement of Cash Flows

For the Years Ended July 3, 2004 and June 28, 2003

Fiscal Year Fiscal Year

(annotated, in millions) 2004 2003

Net cash from operating activities $ 2,042 $1,824

Investment activities:

Purchases of property and equipment (530) (746)

Acquisitions of businesses and investments — (10)

Dispositions of businesses and investments 137 —

Other 209 82

Net cash used in investment activities $ (184) $ (674)

Financing activities:

Issuances of common stock $ 139 $ 98

Purchases of common stock (350) (305)

Redemption of preferred stock — (250)

Borrowings of long-term debt 1 1,773

Repayments of long-term debt (1,288) (995)

Short-term borrowings (repayments), net 15 (395)

Payments of dividends (714) (497)

Other 35 65

Net cash (used in) from financing activities $(2,162) $ (506)

(Decrease) increase in cash and equivalents $ (304) $ 644

Cash and equivalents at beginning of year 942 298

Cash and equivalents at end of year $ 638 $ 942

a. From Sara Lee’s statement of cash flows, determine the free cash flow for the fiscal years

ended 2003 and 2004. Assume 60% of the acquisition of property, plant, and equipment

is used to maintain productive capacity, while the remaining 40% adds to productive

capacity. Round to the nearest dollar.

b. Determine the free cash flow as a percent of sales for both years. The sales were $19,566

and $18,291 for fiscal years 2004 and 2003, respectively (in millions). Round the percent to

one decimal place.

c. Interpret your results.