Exercise 194 The comparative balance sheets for Russell Company appear below: RU
ID: 2567325 • Letter: E
Question
Exercise 194 The comparative balance sheets for Russell Company appear below: RUSSELL COMPANY Comparative Balance Sheet Dec. 31, 2017 Dec. 31, 2016 Assets Cash $38,000 $13,000 Accounts receivable 18,000 14,000 Inventory 25,000 15,000 Prepaid insurance 7,000 9,000 Stock investments -0- 18,000 Equipment 60,000 30,000 Accumulated depreciation-equipment (18,000 ) (14,000 ) Total assets $130,000 $85,000 Liabilities and Stockholder's Equity Accounts payable $25,000 $7,000 Bonds payable 37,000 45,000 Common stock 40,000 23,000 Retained earnings 28,000 10,000 Total liabilities and stockholder's equity $130,000 $85,000 Additional information: 1. Net income for the year ending December 31, 2017, was $30,000. 2. Cash dividends of $12,000 were declared and paid during the year. 3. Stock investments on balance sheet that had a book value of $18,000 were sold for $13,000. 4. Sales for 2017 are $130,000. Prepare a statement of cash flows for the year ended December 31, 2017, using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) RUSSELL CORPORATION Statement of Cash Flows For the Year Ended December 31, 2017 $ Adjustments to reconcile net income to $ $ LINK TO TEXT Compute the following cash based ratios. (Round answers to 2 decimal places, e.g. 15.25.) Current cash debt coverage times Cash debt coverage times Click if you would like to Show Work for this question: Open Show Work
Explanation / Answer
SOLUTION
1.
RUSSELL COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2017
2. A. Current cash debt coverage = Net cash provided by operating activities / Average current liabilities
= $45,000 / [($7,000 + $25,000)/2]
= $45,000 / $16,000
= 2.8 times
B. Cash debt coverage = Net cash provided by operating activities / Average total liabilities
= $45,000 / [($52,000 + $62,000)/2]
= $45,000 / $57,000
= 0.79 times
Amount ($) Amount ($) Cash flows from operating activities Net income 30,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 4,000 Loss on sale of stock investments 5,000 Increase in accounts receivable (4,000) Decrease in prepaid insurance 2,000 Increase in inventory (10,000) Increase in accounts payable 18,000 15,000 Net cash provided by operating activities (A) 45,000 Cash flows from investing activities Sale of stock investments on balance sheet 13,000 Purchase of equipment (30,000) Net cash used by investing activities (B) (17,000) Cash flows from financing activities Issuance of common stock 17,000 Retirement of bonds payable (8,000) Payment of cash dividends (12,000) Net cash used by financing activities (C) (3,000) Net increase in cash (A+B+C) 25,000 Cash at beginning of period 13,000 Cash at end of period 38,000Related Questions
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