Total paid in capital and retained earnings 249000 Less Cost of treasury stock

Total paid in capital and retained earnings 249000

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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
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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.
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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 )
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(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.
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