Total paid in capital and retained earnings 249000

Total paid-in capital and retained earnings .... 249,000
Less: Cost of treasury stock ................................ 11,000
Total stockholders’ equity .............................. 238,000
Total liabilities and stockholders’ equity ...... $551,000
b
The amount determined for current assets could be computed last and then is a
“plug” figure. That is, total liabilities and stockholders’ equity is computed because
information is available to determine this amount. Because the total assets amount is
the same as total liabilities and stockholders’ equity amount, the amount of total
assets is determined. Information is available to compute all the asset amounts except
current assets and therefore current assets can be determined by deducting the total

of all the other asset balances from the total asset balance (i.e., $551,000 – $37,500 –
$201,000 – $16,000). Another way to compute this amount, given the information, is
that beginning current assets plus the $29,000 increase in current assets other than
cash plus the $32,500 increase in cash equals $296,500.

EXERCISE 5-18 (25–35 minutes)
(a) Madrasah Corporation
Statement of Cash Flows
For the Year Ended December 31, 2014
Cash flows from operating activities
Net income ...........................................................
$44,000
Adjustment to reconcile net income
to net cash provided by operating activities:
Depreciation ........................................................
$ 6,000
Increase in accounts payable ............................
5,000
Increase in accounts receivable ........................
(18,000 ) (7,000 )
Net cash provided by operating activities ........
37,000
Cash flows from Investing activities
Purchase of equipment ......................................
(17,000)
Cash flows from financing activities
Issuance of stock ................................................
20,000
Payment of dividends .........................................
(33,000 )
Net cash used by financing activities ...............
(13,000 )
Net increase in cash .................................................
7,000
Cash at beginning of year ........................................
13,000
Cash at end of year ................................................... $20,000
2014 2013
(b) Current ratio 6.3 6.73
$126,000 $101,000
$ 20,000 $ 15,000
Free Cash Flow Analysis
Net cash provided by operating activities .......................... $ 37,000
Less: Purchase of equipment .............................................. (17,000)
Pay dividends .............................................................. (33,000 )
Free cash flow ........................................................................ $ (13,000 )

(c) Although, Madrasah’s current ratio has declined from 2013 to
2014, it is still in excess of 6. It appears the company has good
liquidity and financial flexibility.