Question

Cheyenne Corp.’s income statement for the year ended December 31, 2020, had the following condensed information:

Service revenue				$773,600
Operating expenses (excluding depreciation)		$497,000
Depreciation expense		57,000
Unrealized loss on FV-NI investments		4,500
Loss on sale of equipment		12,100		570,600
Income before income taxes				203,000
Income tax expense				52,000
Net income				$151,000

There were no purchases or sales of trading (FV-NI) investments during 2020.

Cheyenne’s statement of financial position included the following comparative data at December 31:

		2020		2019
FV-NI investments		$21,700		$26,200
Accounts receivable		35,100		54,900
Accounts payable		45,400		31,500
Income tax payable		6,900		9,200

Assume that Cheyenne Corp.’s current cash debt coverage ratio in 2019 was 4.5. Calculate the company’s current cash debt coverage ratio in 2020. (Round answer to 1 decimal places, e.g. 7.5.)

Cash Debt Coverage Ratio times (rounded to 1 decimal place)

Answer 1

Solution:

current cash debt coverage ratio = Operating Cash Flow / Average Current Liability

1) Calculating Operating Cash Flow:

:

Net Income	$151000
Adjustment from from Net income to Net Cash from Opertion
Depreciation expense	57000
Unrealized loss on FV-NI investments	4500
Loss on sale of equipment	12100
Decrease in Account Receivable:54900(2019)-35100(2020)	19800
Increase in Accounts Payable from 31500(2019) to 45400(2020)	13900
Decrease in Incometax Payable: 9200(2019)-6900(2020)	(2300)
Operating Cash Flow	$256000

2) Calculating Average Current Liabilities:Begning Current Liabilities + Ending Current Liabilities / 2

Particular	Begning Current Liabilities(2019)	Ending Current Liabilities(2020)
Accounts payable	31500	45400
Income tax payable	9200	6900
Total	40700	52300

Average Current Liabilities:40700+52300 / 2

Average Current Liabilities: 46500

Current cash debt coverage ratio: 256000(Refer -1) / 46500(Refer-2)

Current cash debt coverage ratio is 5.5