Question

In: Accounting

Problem 3 The Centurion, Inc had the following balance sheet as of 12/31/01 Cash $20,000 A/R...

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

Solutions

Expert Solution

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

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