Question

Riverbed Inc. applies ASPE and had the following statement of financial position at the end of operations for 2019: RIVERBED INC. Statement of Financial Position December 31, 2019 Cash $50,500 Accounts payable $ 93,000 Accounts receivable 90,000 Long-term debt 85,000 Inventory 82,000 Common shares 100,000 Machinery (net) 125,000 Retained earnings 89,500 Trademarks 20,000 $367,500 $367,500 During 2020, the following occurred: 1. Jia Inc. sold some of its trademarks. The trademarks had an unlimited useful life and a cost of $10,000. They were sold for proceeds of $19,500. 2. Machinery was purchased in exchange for long-term debt of $40,000. 3. Long-term debt in the amount of $15,200 was retired before maturity by paying $15,200 cash. 4. An additional $12,000 in common shares was issued. 5. Dividends totalling $13,500 were declared and paid to shareholders. 6. Net income for 2020 was $44,000 after allowing for depreciation of $19,000. 7. Machinery with a carrying value of $18,000 was sold at a gain of $7,000. 8. At December 31, 2020, Cash was $68,800; Accounts Receivable was $111,000; Accounts Payable was $83,000 and Inventory increased to $107,000. Prepare a statement of cash flows for the year ended December 31, 2020, using the indirect method. (Show 2.Prepare the statement of financial position as it would appear at December 31, 2020. (List Assets in order of liquidity.) 3. Calculate the following ratios: (Round current cash debt coverage ratio and cash debt coverage ratio answers to 2 decimal places, e.g. 52.75. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) 1. Free cash flow $ 2. Current cash debt coverage ratio to 1 3. Cash debt coverage ratio to 1

Answer 1

Statement of cash flows for the year ended December 31, 2020		Amount in $
Cash Flow from Operating Activities
Net Income as per Profit & Loss Account		44,000
Adjustment for
Profit on Sale of Trademarks		(9,500)
Profit on Sale of Machinery		(7,000)
Depreciation on Machinery		19,000
		46,500
Adjustments for
(Increase) / Decrease in Accounts Receivable		(21,000)
(Increase) / Decrease in Inventory		(25,000)
Increase / (Decrease) in Accounts Payable		(10,000)
		(56,000)
Net Cash from Operating Activities	A	(9,500)
Cash Flow from Investing Activities
Purcahse of Machinery		(40,000)
Sale of Machinery		25,000
Sale of Trademarks		19,500
Net Cash Flow (used) / generated from Investing Activities	B	4,500
Cash Flow from Financing Activities
Increase / (Decrease) in Long Term Debt		24,800
Issue of Capital		12,000
Payment of Dividend		(13,500)
Net Cash Flow (used) / generated from Financing Activities	C	23,300
Net Increase / (Decrease) in Cash	(A+B+C)	18,300
Cash Balance at the beginning of the Year		50,500
Cash Balance at the end of year		68,800

Statement of Financial Position			Amount in $
	31-Dec-20		31-Dec-20
Cash	68,800	Accounts Payable	83,000
Accounts Receivable	111,000	Long Term Debt	109,800
Inventory	107,000	Common Shares	112,000
Trademarks	10,000	Retained Earnings	120,000
Machinery	128,000
	424,800		424,800

Current Cash Debt Coverage Ratio	Net Cash from Operating Activities / Current Liabilties
i.e (9500) / 83000	(0.11)
Cash Debt Coverage Ratio	Net Cash from Operating Activities / total Liabilties
i.e (9500 / 192800)	(0.05)