Question

Problem 3

The Centurion, Inc had the following balance sheet as of 12/31/01

Cash $20,000

A/R $21,200

Investments $32,000

Plant assets (net) $81,000

Land $40,000

A/P - $30,000

Bonds Payable - $41,000

Common Stock $100,000

Retained Earnings $23,200

During the year 2002, the following occurred

1. Centurion liquidates its available-for-sale debt investment portfolio at a loss of $5,000
2. A tract of land was purchase for $38,000
3. AN additional $30,000 in common stock was issue at par.
4. Dividends totaling $10,000 were declared and paid to stockholders.
5. Net income for 2002 was $35,000, including $12,000 in depreciation expense
6. Land was purchased through the issuance of $30,000 in additional bonds.
7. At 12/31/02, Cash was $70,200. A/R was $42,000. A/P was $40,000.

1. Prepare a statement of cash flows for the 2002.
2. Compute Free Cash Flow and Current Cash Debt Coverage

Answer 1

1.

Centurion, Inc

Statement of Cash flows

For the Year Ended December 31, 2002

Cash flows from operating activities
Net income		$    35,000
Adjustments to reconcile net income to ;
Net cash provided by operating activities
Depreciation	$ 12,000
Loss on sale of investment	$ 5,000
Increase in accounts receivable (42000-21200)	$ (20,800)
Increase in accounts payable (40000-30000)	$ 10,000
		$       6,200
Net cash provided by operating activities		$ 41,200
Cash flows from investing activities
Purchase of land	$ (38,000)
Proceeds from sale of investment (32000-5000)	$ 27,000
Net cash used by investing activities		$ (11,000)
Cash flows from financing activities
issuance of common shares	$ 30,000
Payment of cash dividends	$ (10,000)
Net cash provided by financing activities		$    20,000
Net Increase in cash		$    50,200
Cash at beginning of period		$    20,000
Cash at the end of period		$    70,200

2.

Net cash provided by operating activities	$     41,200
Less: Capital expenditure	$ (38,000)
Less: Payment of dividends	$ (10,000)
Free cash flow	$     (6,800)

Current Cash debt coverage ratio = Net cash provided by operating activities / Average current liabilities

Current Cash debt coverage ratio = $41,200 / ((40000+30000)/2)

Current Cash debt coverage ratio = 1.177