Question

Problem 5-7 (Part Level Submission)

Ayayai Inc. had the following balance sheet at December 31, 2016.

AYAYAI INC. BALANCE SHEET DECEMBER 31, 2016 Cash $ 23,940 Accounts payable $ 33,940 Accounts receivable 25,140 Bonds payable 44,940 Investments 32,000 Common stock 103,940 Plant assets (net) 84,940 Retained earnings 27,140 Land 43,940 $209,960 $209,960

During 2017, the following occurred. 1. Ayayai liquidated its available-for-sale investment portfolio at a loss of $8,940. 2. A tract of land was purchased for $41,940. 3. An additional $30,000 in common stock was issued at par. 4. Dividends totaling $13,940 were declared and paid to stockholders. 5. Net income for 2017 was $38,940, including $15,940 in depreciation expense. 6. Land was purchased through the issuance of $33,940 in additional bonds. 7. At December 31, 2017, Cash was $74,140, Accounts Receivable was $45,940, and Accounts Payable was $43,940.

Answer 1

a. Statement of cash flow

Cash flow from Operating activities

Net income 38940

add: Depreciation 15940

loss of available-for-sale investment 8940

63820

increase in  Accounts Receivable (20800)

increase in  Accounts payable 10000

Net cash provided by Operating activities $53020

Cash flow from Financing activities

Issue of common stock 30000

Dividend paid (13940)

Net cash provided by Financing activities $16060

Cash flow from Investing activities

Purchase of land (41940)

sale of investment [ 32,000 - $8,940] 23060   

Net cash used by investing activities (18880)

Net increase in cash    $50200

Add: Cash at beginning $ 23,940

Cash at End $74,140

Non cash investing and financing activities:

. Land was purchased through the issuance of Bonds $33,940

b.    AYAYAI INC. BALANCE SHEET DECEMBER 31, 2017

Assets Liabilities and shareholder's equity

Cash $74,140 Accounts Payable $43,940

Accounts Receivable $45,940 Bonds payable [44,940+33940] 78880

Land [$33,940 +43,940+41940 ] 119820   common stock [$30,000+103,940] 133940

Plant assets (net) Retained earnings

[84,940 - $15,940] 69000    [ 27,140 + 38940 - 13940]   52140

   Total Assets $308900 Total Liabilities and shareholder's equity $308900   

c. Current Cash debt coverage ratio = Cash flow from Operating activities / Average current liabilities

= $53020 / {[$43,940 +33,940 ] / 2}

= $53020 / $38940

= 1.36

Cash debt coverage ratio = Cash flow from Operating activities / Total liabilities

= $53020 / $122820

= 0.43