Financial statements for Space Galaxy Ltd. are presented below: Space Galaxy Ltd
ID: 2520225 • Letter: F
Question
Financial statements for Space Galaxy Ltd. are presented below:
Space Galaxy Ltd.
Statement of Financial Position
December 31, 2018
Assets Liabilities & Shareholders’ Equity
Cash ................................................ $ 44,000 Accounts payable $ 28,000
Accounts receivable 39,000 Bonds payable 54,000
Buildings and equipment 154,000
Accumulated depreciation—
buildings and equipment (46,000) Common shares 69,000
Patents 24,000 Retained earnings 64,000
$215,000 $215,000
Space Galaxy Ltd.
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash flows from operating activities
Net income $ 60,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accounts receivable $(19,000)
Increase in accounts payable 7,000
Depreciation—buildings and equipment 12,000
Gain on sale of equipment (7,000)
Amortization of patents 3,000 (4,000)
Net cash provided by operating activities 56,000
Cash flows from investing activities
Sale of equipment 14,000
Purchase of land (27,000)
Purchase of buildings and equipment (52,000)
Net cash used by investing activities (65,000)
Cash flows from financing activities
Payment of cash dividend (25,000)
Sale of bonds 45,000
Net cash provided by financing activities 20,000
Net increase in cash 11,000
Cash, January 1, 2018 33,000
Cash, December 31, 2018 $ 44,000
At the beginning of 2018, the accounts payable balance was $21,000, and the bonds payable balance was $9,000. All of Space Galaxy’s bonds have been issued at par.
Required
1. Calculate the current cash debt coverage ratio
2. Calculate the cash debt coverage ratio
3. Calculate the free cash flow
Explanation / Answer
Computation of Current Cash Debt Coverage Ratio Net Cash provided by operating Activities (a) $56,000.00 Average Current Liabilities (b) ($28000+$28000-7000)/2 $24,500.00 Current Cash Debt Coverage Ratio (a/b) 2.29 Computation of Cash Debt Coverage Ratio Net Cash provided by operating Activities (a) $56,000.00 Average Total Liabilities (b) ( 28000+54000+28000+54000-7000-45000)/2 $56,000.00 Cash Debt Coverage Ratio (a/b) 1 Computation of Free Cash Flow Operating Cash Flow (a) $56,000.00 Capital Expenditure (b) -$65,000.00 Free Cash Flow (a-b) $121,000.00
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