Question

A comparative balance sheet for Martinez Corporation is presented below.

		December 31
Assets		2017			2016
Cash		$  72,870			$  22,000
Accounts receivable		83,730			67,860
Inventory		181,730			190,860
Land		72,730			111,860
Equipment		261,730			201,860
Accumulated Depreciation-Equipment		( 70,730	)		( 43,860	)
Total		$ 602,060			$ 550,580
Liabilities and Stockholders' Equity
Accounts payable		$  35,730			$  48,860
Bonds payable		150,000			200,000
Common stock ($1 par)		214,000			164,000
Retained earnings		202,330			137,720
Total		$ 602,060			$ 550,580

Additional information:

1.		Net income for 2017 was $ 128,460. No gains or losses were recorded in 2017.
2.		Cash dividends of $ 63,850 were declared and paid.
3.		Bonds payable amounting to $ 50,000 were retired through issuance of common stock.

Prepare a statement of cash flows for 2017 for Martinez Corporation. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

MARTINEZ CORPORATION Statement of Cash Flows choose the accounting periodchoose the accounting period  December 31, 2017For the Year Ended December 31, 2017For the Quarter Ended December 31, 2017
select an opening name for section oneselect an opening name for section one  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities
select an itemselect an item  Increase in InventoryDecrease in Accounts PayableIncrease in Accounts ReceivableIncrease in Accounts PayableDepreciation expensePurchase of EquipmentDecrease in InventorySale of LandNet IncomeDecrease in Accounts ReceivablePayment of Cash Dividends		$ enter a dollar amount
Adjustments to reconcile net income to
select an opening name for subsection oneselect an opening name for subsection one  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities
select an itemselect an item  Depreciation expenseDecrease in InventoryNet IncomePayment of Cash DividendsDecrease in Accounts PayableIncrease in Accounts PayableIncrease in InventorySale of LandIncrease in Accounts ReceivableDecrease in Accounts ReceivablePurchase of Equipment	$ enter a dollar amount
select an itemselect an item  Increase in Accounts ReceivableDepreciation expenseDecrease in Accounts PayablePurchase of EquipmentIncrease in Accounts PayablePayment of Cash DividendsIncrease in InventorySale of LandDecrease in Accounts ReceivableDecrease in InventoryNet Income	enter a dollar amount
select an itemselect an item  Decrease in InventoryPurchase of EquipmentDecrease in Accounts ReceivableIncrease in Accounts PayableIncrease in InventoryIncrease in Accounts ReceivableNet IncomeSale of LandDepreciation expensePayment of Cash DividendsDecrease in Accounts Payable	enter a dollar amount
select an itemselect an item  Increase in InventoryPurchase of EquipmentIncrease in Accounts PayableDecrease in Accounts PayableDecrease in InventoryDepreciation expenseIncrease in Accounts ReceivablePayment of Cash DividendsDecrease in Accounts ReceivableSale of LandNet Income	enter a dollar amount
		enter a subtotal of the four previous amounts
select a closing name for section oneselect a closing name for section one  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities		enter a total amount for section one
select an opening name for section twoselect an opening name for section two  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities
select an itemselect an item  Sale of LandIncrease in Accounts ReceivableDecrease in Accounts ReceivableNet IncomeDecrease in Accounts PayableIncrease in Accounts PayablePayment of Cash DividendsIncrease in InventoryDepreciation expenseDecrease in InventoryPurchase of Equipment	enter a dollar amount
select an itemselect an item  Increase in Accounts PayableDecrease in InventoryDepreciation expenseIncrease in InventorySale of LandDecrease in Accounts PayableDecrease in Accounts ReceivablePayment of Cash DividendsNet IncomePurchase of EquipmentIncrease in Accounts Receivable	enter a dollar amount
select a closing name for section twoselect a closing name for section two  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities		enter a total amount for section two
select an opening name for section threeselect an opening name for section three  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities
select an itemselect an item  Sale of LandIncrease in InventoryNet IncomeDecrease in Accounts PayableDecrease in InventoryDepreciation expensePayment of Cash DividendsPurchase of EquipmentDecrease in Accounts ReceivableIncrease in Accounts ReceivableIncrease in Accounts Payable		enter a dollar amount
select an itemselect an item  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities		enter a total amount for three sections
select an itemselect an item  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities		enter a dollar amount
select a closing name for this statementselect a closing name for this statement  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities		$ enter a total of the two previous amounts
select an itemselect an item  Cash at Beginning of YearCash at End of YearCash Flows from Financing ActivitiesCash Flows from Investing ActivitiesCash Flows from Operating ActivitiesNet Cash Provided by Financing ActivitiesNet Cash Provided by Investing ActivitiesNet Cash Provided by Operating ActivitiesNet Cash Used by Financing ActivitiesNet Cash Used by Investing ActivitiesNet Cash Used by Operating ActivitiesNet Decrease in CashNet Increase in CashNoncash Investing and Financing Activities
Issued common stock to retire $ enter a dollar amount  of bonds outstanding

Determine Martinez Corporation’s current cash debt coverage, cash debt coverage, and free cash flow. (Round current cash debt coverage and cash debt coverage to 2 decimal places., e.g. 0.67.)

Current cash debt coverage		enter the current cash debt coverage rounded to 2 decimal places	:1
Cash debt coverage		enter the Cash debt coverage rounded to 2 decimal places	:1
Free cash flow		$ enter a dollar amount

Comment on its liquidity and financial flexibility.

Martinez has  select an optionselect an option  poorexcellent liquidity. Its financial flexibility is  select an optionselect an option  goodbad.

Answer 1

1

Martinez Corporation
Cash flow statement
Particulars	Amount $	Amount $
Cash flow from operating activities
Net Income		$128,460
Add:- non cash expenses
Depreciation (70,730-43860)	$26,870
Less:- Increase in current assets (67860-83730)	-15870
Add:- Decrease in current assets (190860-18730)	9130
Add:- decrease in Account payable (35730-48,860)	-13130
Total Changes		$7,000
cash inflow from operating activities		$135,460
cash flow from Investing activities
sale of land (111860-72730)	$39,130
Purchased of equipment(201860-261730)	($59,870)
cash outflow from investing activates		($20,740)
C. cash flow from financing activities
Bond retired for issuance of common stock	($50,000)
payment of Dividend	($63,850)
Issuance of common stock	$50,000
cash outflow from financing activates		($63,850)
Net cash changes		$50,870
cash of beginning balance		$22,000
cash at ending balance		$72,870

2

Current cash debt coverage ratio	Net cash provided by operating activities /Average current liabilities =135460/ ( 35,730+48860)/2 =3.20
Cash debt coverage ratio	Net cash provided by operating activities /Average total liabilitie =135460/ ( 185730+248860)/2 =0.62

               

Net cash provided by operating activities		$135,460
less: purchase of equipment	($59,870)
dividend	($63,850)
		($123,720)
Free cash flow		$11,740

3

Martinez has Excellent liquidity

Its financial flexibility is good