Question

In: Accounting

Presented below is a condensed version of comparative balance sheets partial for Orozco Corporation’s for the...

Presented below is a condensed version of comparative balance sheets partial for Orozco Corporation’s for the last two years at December 31.

Obermeyer Corporation issued the following statement of cash flows for 2017.

OBERMEYER CORPORATION
Statement of Cash Flows—Indirect Method
For the Year Ended December 31, 2017
Cash flows from operating activities
Net income		$59,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	9,100
Loss on disposal of equipment	9,500
Increase in inventory	(5,000)
Decrease in accounts receivable	3,300
Decrease in accounts payable	(2,200)	14,700
Net cash provided by operating activities		73,700
Cash flows from investing activities
Sale of investments	3,100
Purchase of equipment	(27,000)
Net cash used by investing activities		23,900)
Cash flows from financing activities
Issuance of stock	20,000
Payment on long-term note payable	(10,000)
Payment for dividends	(15,000)
Net cash used by financing activities		(5,000)
Net increase in cash		44,800
Cash at beginning of year		13,000
Cash at end of year		$57,800

Instructions

Compute free cash flow for Obermeyer Corporation.
Explain why free cash flow often provides better information than “Net cash provided by operating activities.”

Additional information:

Net cash provided by operating activities for 2019 was $132,000
Cash dividends of $60,000 were declared and paid.
Bonds payable amounting to $50,000 were retired through issuance of common stock.
Net income for 2019 was $125,000

Instruction

Determine Orozco Corporation’s current cash debt coverage ratio, cash debt coverage ratio, and free cash flow. Comment on its liquidity and financial flexibility.

Expert Solution

Free Cash Flows is the net difference of Operating Cash Flows and Capital Expenditure

(a) Free Cash Flow for Obermeyer Corporation for the year 2017-

Particulars	Amount ($)
Operating Cash Flows	73,700
Less- Capital Expenditure
Purchase of equipment	(27,000)

Free Cash Flow	46,700

(b) Free Cash Flow provides better information than cash flow from operating activities as the free cash flow gives the overview of the amount available after incurrinh the expenses for the business. whereas the operating activities gives only the brief income after paying the operating expenses (like rent, depreciation, general expenses etc) that are available for business.

For the Year 2019

Cash Debt Coverage Ratio-

Cash Flow from operation / Total Business debt
=(132,000/50,000)*100
=2.64%

Free Cash Flows

Cash Flow from Operation - Capital Expenditure incurred by business
=132,000 - Nil (since there is no capital expenditure by the company in the current year)
=132,000.

Liquidity:
Since, the company net working capital of the year 2017 is 14,700 it has fair liquidity position as it current assets are increasing comparitive to the current liabilities.

Financial:
As comparing the data of 2017 with 2019, company is paying more debt in comparison to issuing the equity. The company is paying more Bonds repayment in 2019 in comparison to 2017.

ekkarill92 answered 1 year ago

Presented below is a condensed version of the comparative balance sheets for Grouper Corporation for the...

Presented below is a condensed version of the comparative balance sheets for Grouper Corporation for the last two years at December 31. 2017 2016 Cash $174,900 $46,600 Accounts receivable 116,900 75,800 Investments 71,300 93,900 Equipment 352,900 173,900 Accumulated depreciation—equipment (90,900) (66,100) Current liabilities 137,700 91,900 Common stock 138,300 63,700 Retained earnings 354,700 174,100 Additional information: Investments were sold at a gain of $9,100; no investments were purchased; no equipment was sold; cash dividends paid were $41,700; and net income was...

Presented below is a condensed version of the comparative balance sheets for Windsor Corporation for the...

Presented below is a condensed version of the comparative balance sheets for Windsor Corporation for the last two years at December 31. 2017 2016 Cash $ 309,750 $ 136,500 Accounts receivable 315,000 323,750 Investments 91,000 129,500 Equipment 521,500 420,000 Accumulated Depreciation-Equipment (185,500 ) (155,750 ) Current liabilities 234,500 264,250 Common stock 280,000 280,000 Retained earnings 537,250 309,750 Additional information: Investments were sold at a loss of $17,500; no equipment was sold; cash dividends paid were $52,500; and net income was...

Exercise 5-15 Presented below is a condensed version of the comparative balance sheets for Zubin Mehta...

Exercise 5-15 Presented below is a condensed version of the comparative balance sheets for Zubin Mehta Corporation for the last two years at December 31. 2014 2013 Cash $ 321,432 $ 141,648 Accounts receivable 326,880 335,960 Investments 94,432 134,384 Equipment 541,168 435,840 Accumulated Depreciation-Equipment (192,496 ) (161,624 ) Current liabilities 243,344 274,216 Common stock 290,560 290,560 Retained earnings 557,512 321,432 Your answer is incorrect. Try again. Determine Zubin Mehta Corporation’s free cash flow

Rodriquez Corporation’s comparative balance sheets are presented below.

Rodriquez Corporation’s comparative balance sheets are presented below. Additional information: 1. Net income was $18,300. Dividends declared and paid were $16,400. 2. Equipment which cost $10,000 and had accumulated depreciation of $1,200 was sold for $3,300. 3. No noncash investing and financing activities occurred during 2017. Instructions (a) Prepare a statement of cash flows for 2017 using the indirect method. (b) Compute free cash flow.

Rojas Corporation’s comparative balance sheets are presented below.

Rojas Corporation’s comparative balance sheets are presented below. Additional information: 1. Net income was $22,630. Dividends declared and paid were $19,500. 2. No noncash investing and financing activities occurred during 2017. 3. The land was sold for cash of $4,900. Instructions (a) Prepare a statement of cash flows for 2017 using the indirect method. (b) Compute free cash flow.

The comparative condensed balance sheets of Gurley Corporation are presented below. GURLEY CORPORATION Comparative Condensed Balance...

The comparative condensed balance sheets of Gurley Corporation are presented below. GURLEY CORPORATION Comparative Condensed Balance Sheets December 31 2017 2016 Assets Current assets $ 73,800 $ 79,400 Property, plant, and equipment (net) 97,100 91,200 Intangibles 27,400 40,200 Total assets $198,300 $210,800 Liabilities and stockholders’ equity Current liabilities $ 40,400 $ 49,200 Long-term liabilities 143,200 148,000 Stockholders’ equity 14,700 13,600 Total liabilities and stockholders’ equity $198,300 $210,800 b) Prepare a vertical analysis of the balance sheet data for Gurley Corporation...

The following is a condensed version of the comparative balance sheets for Tamarisk Corporation for the...

The following is a condensed version of the comparative balance sheets for Tamarisk Corporation for the last two years at December 31. 2020 2019 Cash $ 336,300 $ 148,200 Accounts receivable 342,000 351,500 Investments 98,800 140,600 Equipment 566,200 456,000 Accumulated Depreciation-Equipment (201,400 ) (169,100 ) Current liabilities 254,600 286,900 Common stock 304,000 304,000 Retained earnings 583,300 336,300 Additional information: Investments were sold at a loss of $19,000; no equipment was sold; cash dividends paid were $57,000; and net income was...

The following is a condensed version of the comparative balance sheets for Shamrock Corporation for the...

The following is a condensed version of the comparative balance sheets for Shamrock Corporation for the last two years at December 31. 2020 2019 Cash $ 300,900 $ 132,600 Accounts receivable 306,000 314,500 Investments 88,400 125,800 Equipment 506,600 408,000 Accumulated Depreciation-Equipment (180,200 ) (151,300 ) Current liabilities 227,800 256,700 Common stock 272,000 272,000 Retained earnings 521,900 300,900 Additional information: Investments were sold at a loss of $17,000; no equipment was sold; cash dividends paid were $51,000; and net income was...

The following is a condensed version of the comparative balance sheets for Pronghorn Corporation for the...

The following is a condensed version of the comparative balance sheets for Pronghorn Corporation for the last two years at December 31. 2020 2019 Cash $ 230,100 $ 101,400 Accounts receivable 234,000 240,500 Investments 67,600 96,200 Equipment 387,400 312,000 Accumulated Depreciation-Equipment (137,800 ) (115,700 ) Current liabilities 174,200 196,300 Common stock 208,000 208,000 Retained earnings 399,100 230,100 Additional information: Investments were sold at a loss of $13,000; no equipment was sold; cash dividends paid were $39,000; and net income was...

Rojas Corporation’s comparative balance sheets are presented below. ROJAS CORPORATION Comparative Balance Sheets December 31 2020...

Rojas Corporation’s comparative balance sheets are presented below. ROJAS CORPORATION Comparative Balance Sheets December 31 2020 2019 Cash $14,400 $10,000 Accounts receivable 20,800 23,000 Land 19,800 25,900 Buildings 70,300 70,300 Accumulated depreciation—buildings (14,700 ) (10,600 ) Total $110,600 $118,600 Accounts payable $12,200 $27,600 Common stock 75,600 71,000 Retained earnings 22,800 20,000 Total $110,600 $118,600 Additional information: 1. Net income was $22,600. Dividends declared and paid were $19,800. 2. No noncash investing and financing activities occurred during 2020. 3. The land...