Business, 12.08.2020 06:01 amyrose90999

Cheyenne Corp. had the following transactions that took place during the year:I. Recorded credit sales of $2250II. Collected $1350 from customersIII. Recorded sales returns of $450 and credited the customer's account. What is the total effect of these transactions on free cash flow?a) No Effectb) Cannot be determinedc) Increased) Decrease

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Answer from: QueenNerdy889

The correct option is d) Decrease.

Explanation:

Free cash flow (FCF) can be described as the cash that is generated by a company after cash outflows required to support operations and maintain the capital assets of the company have been accounted for.

Therefore, FCF can be calculated by adjusting for non-cash expenses, changes in working capital, and capital expenditures to reconcile net income.

The total effect of these transactions on free cash flow can be determined by first calculating the account receivable for the year as follows:

Calculation of account receivable for the year:

Particular Amount ($)

Credit sales 2,250

Cash collected from the customer (1,350)

Sales returns (450)

Account receivable 450

A partial free cash flow statement can therefore be prepared as follows:

Cheyenne Corp.

Free cash flow statement (Partial)

Particular Amount ($)

Net income xx

(Increase) decrease in non-cash current assets:

Increase in account receivable (450)

Free cash flow (450)

Since the free cash flow is negative or minus $450, it therefore implies that the total effect of these transactions on free cash flow is a decrease.

Therefore, the correct option is d) Decrease.

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Answer from: Quest

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