Question

Please answer these questions and give an explanation as to the answer:

Question 1

What ratio measures the underlying risk of a company?

Question 2

Gaston Co. reports the following cash activities for the year:

Receive cash from customers	$100,000
Pay cash to purchase building	$90,000
Receive cash from issuance of stock	$50,000
Pay cash for employee salaries	$40,000
Pay cash for dividend to stockholders	$20,000
Receive cash from sale of land	$70,000
Pay cash for repayment of borrowing	$80,000
Receive cash from long-term borrowing	$60,000
Pay cash for purchase of supplies	$30,000

Calculate the amount of investing cash flows?

Question 3

Clothing Emporium was organized on January 1, 2015. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2015, Clothing Emporium had the following transactions relating to shareholders' equity: Issued 30,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. What is the total amount recorded in the Common Stock account at the end of 2015?

Question 4

Gaston Co. reports the following amounts: Net income $25,000 Depreciation Expense $4,000 Increase in Accounts Receivable $1,000 Issuance of common stock $15,000 Decrease in Taxes Payable $3,000 Sale of land $20,000 Loss on the sale of land $2,000 Payment of dividends $5,000 Calculate the amount of operating cash flows:

Answer 1

1. Debt to equity ratio measures the underlying risk of the company. The debt to equity (ratio is calculated by dividing a company's total liabilities by its shareholder equity. It is therefore closing related to leverage which is called risk.

2. Investing cash flows = (Pay cash to purchase building) + Receive cash from sale of land

        = (90,000)+ 20,000

        =    -20,000 i.e. Negative outflows

3. Only the par value is accounted for in common stock account. In this case, par value is $5. The total number of common stock issued is 30,000 + 20,000 = 50,000 shares. Hence, total amount recorded in common stock account = 50,000 * 5 = $250,000

4. Amount of operating cash flows

= Net income + Deprecition + loss on sale of land – Increase in accounts receivable – Decrease in taxes payable

= 25000 + 4000 + 2000 – 1000 – 3000

= $ 27000 Positive cash Inflows