Purchase of equipment 58000 Net cash used by investing activities 46000 Cash

Purchase of equipment 58000 net cash used by

This preview shows page 9 - 12 out of 12 pages.

      Purchase of equipment .........................................  (58,000 )       Net cash used by investing activities .................. (46,000) Cash flows from financing activities       Payment of cash dividends ...................................    (30,000 ) Net increase in cash .................................................... 99,000 Cash at beginning of year ...........................................     78,000 Cash at end of year ...................................................... $177,000 (b) Free Cash Flow Analysis Net cash provided by operating activities ................. $175,000 Less:  Purchase of equipment .................................... (58,000)            Dividends ...........................................................    (30,000 ) Free cash flow .............................................................. $  87,000
Image of page 9
EXERCISE 5-16 (20–25 minutes) (a) Shabbona Corporation Statement of Cash Flows For the Year Ended December 31, 2014 Cash flows from operating activities       Net income .............................................................. $125,000       Adjustments to reconcile net income          to net cash provided by operating           activities:             Depreciation expense ...................................... $27,000             Increase in accounts receivable ..................... (16,000)             Decrease in inventory ...................................... 9,000             Decrease in accounts payable ........................  (13,000 )       7,000       Net cash provided by operating activities ........... 132,000 Cash flows from investing activities       Sale of land ............................................................. 39,000       Purchase of equipment .........................................  (60,000 )       Net cash used by investing activities .................. (21,000) Cash flows from financing activities       Payment of cash dividends ...................................    (60,000 ) Net increase in cash .................................................... 51,000 Cash at beginning of year ...........................................     22,000 Cash at end of year ...................................................... $  73,000 Noncash investing and financing activities       Issued common stock to retire $50,000 of bonds outstanding
Image of page 10
EXERCISE 5-16 (Continued) (b) Current cash debt coverage =     Net cash provided by operating activities Average current liabilities $132,000 ($34,000 + $47,000) / 2   =  3.26 to 1 Cash debt coverage =  Net cash provided by operating activities = Average total liabilities $132,000  ÷ $184,000 + $247,000 = 2 .61 to 1 Free Cash Flow Analysis Net cash provided by operating activities ......................... $132,000 Less:  Purchase of equipment ............................................ (60,000)            Dividends ...................................................................    (60,000 ) Free cash flow ...................................................................... $  12,000 Shabbona has excellent liquidity. Its financial flexibility is good. It might be noted that it substantially reduced its long-term debt in 2014 which will help its financial flexibility.
Image of page 11
CA 5-2
Image of page 12

You've reached the end of your free preview.

Want to read all 12 pages?

  • Spring '14
  • JoyceA.Hicks
  • Accounting, ........., Doubtful Accounts, CASH  FLOW

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture