Problem:
Presented below are the financial statements of Weller Company.
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WELLER COMPANY
Comparative Balance Sheets
December 31
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Assets
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2007
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2006
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Cash
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$35,000
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$20,000
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Accounts receivable
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33,000
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14,000
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Merchandise inventory
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27,000
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20,000
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Property, plant, and equipment
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60,000
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78,000
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Accumulated depreciation
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(29,000)
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(24,000)
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Total
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$126,000
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$108,000
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|
|
|
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Liabilities and Stockholders' Equity
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|
|
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Accounts payable
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$29,000
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$15,000
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Income taxes payable
|
7,000
|
8,000
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Bonds payable
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27,000
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33,000
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Common stock
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18,000
|
14,000
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Retained earnings
|
45,000
|
38,000
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Total
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$126,000
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$108,000
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WELLER COMPANY
Income Statement
For the Year Ended December 31, 2007
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Sales
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$242,000
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Cost of goods sold
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175,000
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Gross profit
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67,000
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Selling expenses
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$18,000
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|
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Administrative expenses
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6,000
|
24,000
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Income from operations
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43,000
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Interest expense
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3,000
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Income before income taxes
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40,000
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Income tax expense
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8,000
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Net income
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$32,000
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Additional data:
1. Dividends declared and paid were $25,000
2. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had a book value of $8,500 at the time of sale.
3. All depreciation expense is in the selling expense category.
4. All sales and purchases are on account.
Instructions:
a. Prepare a statement of cash flows using the indirect method.
b. Compute these cash-basis measures:
1. Current cash debt coverage ratio.
2. Cash debt coverage ratio.
3. Free cash flow.
Notes in the margin:
a. Cash from operations $33,500