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Problem 5 6 continued b lansbury inc balance sheet

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PROBLEM 5-6 (Continued) (b) LANSBURY INC. Balance Sheet December 31, 2012 Assets Liabilities and Stockholders’ Equity Cash $32,000 Accounts payable $30,000 Accounts receivable 41,600 Notes payable (long-term) 25,000 (4) Investments 20,400 (1) Bonds payable 30,000 (5) Plant assets (net) 70,000 (2) Common stock 120,000 (6) Land 88,000 (3) Retained earnings 47,000 (7) $252,000 $252,000 (1) $32,000 – ($15,000 – $3,400) (2) $81,000 – $11,000 (3) $40,000 + $18,000 + $30,000 (4) $41,000 – $16,000 (5) $0 + $30,000 (6) $100,000 + $20,000 (7) $23,200 + $32,000 – $8,200 (c) Cash flow information is useful for assessing the amount, timing, and uncertainty of future cash flows. For example, by showing the specific inflows and outflows from operating activities, investing activities, and financing activities, the user has a better understanding of the liquidity and financial flexibility of the enterprise. Similarly, these reports are useful in providing feedback about the flow of enterprise resources. This information should help users make more accurate predictions of future cash flow. In addition, some individuals have expressed concern about the quality of the earnings because the measurement of the income depends on a number of accruals and estimates which may be somewhat subjective. As a result, the higher the ratio of cash provided by operating activities to net income, the more comfort some users have in the reliability of the earnings. In this problem the ratio of cash provided by operating activities to net income is 60% ($19,200 ÷ $32,000).
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PROBLEM 5-6 (Continued) An analysis of Lansbury free cash flow indicates it is negative as shown below: Free Cash Flow Analysis Net cash provided by operating activities ........................... $19,200 Less: Purchase of land ........................................................ 18,000 Dividends ................................................................... 8,200 Free cash flow ........................................................................ $ (7,000 ) Its current cash debt coverage ratio is 0.64 to 1 $19,200 $30,000 and its cash debt coverage ratio is 0.25 to 1 $19,200 ÷ $71,000 + $85,000 2 , which are reasonable. Overall, it appears that its liquidity position is average and overall financial flexibility and solvency should be improved.
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PROBLEM 5-7 (a) AERO INC. Statement of Cash Flows For the Year Ended December 31, 2012 Cash flows from operating activities Net income ........................................................... $35,000 Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense ................................... $12,000 Loss on sale of investments ........................ 5,000 Increase in accounts payable ($40,000 – $30,000) .................................. 10,000 Increase in accounts receivable ($42,000 – $21,200) .................................. (20,800 ) 6,200 Net cash provided by operating activities ........ 41,200 Cash flows from investing activities Sale of investments ............................................ 27,000 Purchase of land ................................................. (38,000 ) Net cash used by investing activities ............... (11,000) Cash flows from financing activities Issuance of common stock ................................ 30,000 Payment of cash dividends ................................ (10,000 ) Net cash provided by financing activities ........ 20,000 Net increase in cash ................................................. 50,200 Cash at beginning of year ........................................ 20,000 Cash at end of year ................................................... $70,200 Noncash investing and financing activities Land purchased through issuance of $30,000 of bonds
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PROBLEM 5-7 (Continued) (b) AERO INC. Balance Sheet December 31, 2012 Assets Liabilities and Stockholders’ Equity Cash $ 70,200 Accounts payable $ 40,000 Accounts receivable 42,000 Bonds payable Common stock 71,000 130,000 (3) (4) Plant assets (net) 69,000 (1) Retained earnings 48,200 (5) Land 108,000 (2) $289,200 $289,200 (1) $81,000 – $12,000 (2) $40,000 + $38,000 + $30,000 (3) $41,000 + $30,000 (4) $100,000 + $30,000 (5) $23,200 + $35,000 – $10,000 (c) An analysis of Aero’s free cash flow indicates it is negative as
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  • Spring '08
  • JCEasterwood
  • Balance Sheet, ........., Generally Accepted Accounting Principles

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