5 34 exercise 5 15 2535 minutes a zubin mehta

5-34
EXERCISE 5-15 (25–35 minutes)
(a) Zubin Mehta Corporation
Statement of Cash Flows
For the Year Ended December 31, 2007
Cash flows from operating activities
Net income ...................................................................... $160,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense ........................................... $17,000
Loss on sale of investments .............................. 10,000
Decrease in accounts receivable ..................... 5,000
Decrease in current liabilities ............................ (17,000) 15,000
Net cash provided by operating activities ............ 175,000
Cash flows from investing activities
Sale of investments ..................................................... 12,000
[($74,000 – $52,000) – $10,000]
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

5-35
EXERCISE 5-16 (20–25 minutes)
(a) Shabbona Corporation
Statement of Cash Flows
For the Year Ended December 31, 2007
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

5-36
EXERCISE 5-16 (Continued)
(b) Current cash debt coverage ratio =
Net cash provided by operating activities
= Average current liabilities
$132,000
=
($34,000 + $47,000) / 2
= 3.26 to 1
Cash debt coverage ratio =
Net cash provided by operating activities
Average total liabilities
=
$184,000 + $247,000
$132,000 ÷
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 2007 which will help
its financial flexibility.

5-37
EXERCISE 5-17 (30–35 minutes)
(a) Grant Wood Corporation
Statement of Cash Flows
For the Year Ended December 31, 2007
Cash flows from operating activities
Net income .......................................................................... $55,000
Adjustments to reconcile net income
to net cash provided by operating