Current cash debt coverage ratio

E5-13 The major classifications of activities reported in the statement of cash flows are operating, investing, and financing. Classify each of the transactions listed below as:

1. Operating activity-add to net income.

2. Operating activity-deduct from net income.

3. Investing activity.

4. Financing activity.

5. Reported as significant noncash activity

The transactions are as follows.

Transactions Classifications of Activities

(a) Issuance of common stock.

(b) Purchase of land and building.

(c) Redemption of bonds

(d) Sale of equipment.

(e) Depreciation of machinery.

(f) Amortization of patent.

(g) Issuance of bonds for plant assets.

(h) Payment of cash dividends.

(i) Exchange of furniture for office equipment.

(j) Purchase of treasury stock.

(k) Loss on sale of equipment.

(l) Increase in accounts receivable during the year.

(m) Decrease in accounts payable during the year.

E5-16 A comparative balance sheet for Shabbona Corporation is presented below.

December 31

Assets 2014 2013

Cash $ 73,000 $ 22,000

Accounts receivable 82,000 66,000

Inventory 180,000 189,000

Land 71,000 110,000

Equipment 260,000 200,000

Accumulated Depreciation-Equipment (69,000) (42,000)

Total $597,000 $545,000

Liabilities and Stockholders' Equity

Accounts payable $ 34,000 $ 47,000

Bonds payable 150,000 200,000

Common stock ($1 par) 214,000 164,000

Retained earnings 199,000 134,000

Total $597,000 $545,000

Additional information:

1. Net income for 2014 was $125,000.

2. Cash dividends of $60,000 were declared and paid.

3. Bonds payable amounting to $50,000 were retired through issuance of common stock.

Prepare a statement of cash flows for 2014 for Shabbona Corporation. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Issued common stock to retire $ of bonds outstanding

Determine Shabbona Corporation’s current cash debt coverage ratio, cash debt coverage ratio, and free cash flow. (Round ratios to 2 decimal places., e.g. 0.67.)

Current cash debt coverage ratio :1

Cash debt coverage ratio :1

Free cash flow

Comment on its liquidity and financial flexibility.

Shabbona has

liquidity. Its financial flexibility is

E23-2 Each of the following items must be considered in preparing a statement of cash flows (indirect method) for Turbulent Indigo Inc. for the year ended December 31, 2014. State where each item is to be shown in the statement of cash flows, if at all.

Items

(a) Plant assets that had cost $20,000 6 years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for $5,300.

(b) During the year, 10,000 shares of common stock with a stated value of $10 a share were issued for $43 a share.

(c) Uncollectible accounts receivable in the amount of $27,000 were written off against Allowance for Doubtful Accounts.

(d) The company sustained a net loss for the year of $50,000. Depreciation amounted to $22,000, and a gain of $9,000 was realized on the sale of land for $39,000 cash.

(e) A 3-month U.S. Treasury bill was purchased for $100,000. The company uses a cash and cash-equivalent basis for its cash flow statement.

(f) Patent amortization for the year was $20,000.

(g) The company exchanged common stock for a 70% interest in Tabasco Co. for $900,000.

(h) During the year, treasury stock costing $47,000 was purchased.

E23-11 Condensed financial data of Pat Metheny Company for 2014 and 2013 are presented below.

PAT METHENY COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2014 AND 2013

2014 2013

Cash $1,800 $1,150

Receivables 1,750 1,300

Inventory 1,600 1,900

Plant assets 1,900 1,700

Accumulated depreciation (1,200) (1,170)

Long-term investments (held-to-maturity) 1,300 1,420

$7,150 $6,300

Accounts payable $1,200 $900

Accrued liabilities 200 250

Bonds payable 1,400 1,550

Capital stock 1,900 1,700

Retained earnings 2,450 1,900

$7,150 $6,300

PAT METHENY COMPANY
INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2014

Sales revenue $6,900

Cost of goods sold 4,700

Gross margin 2,200

Selling and administrative expenses 930

Income from operations 1,270

Other revenues and gains

Gain on sale of investments 80

Income before tax 1,350

Income tax expense 540

Net income $810

Cash dividends 260

Income retained in business $550

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2014.

Prepare a statement of cash flows using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

E23-12 Condensed financial data of Pat Metheny Company for 2014 and 2013 are presented below.

PAT METHENY COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2014 AND 2013

2014 2013

Cash $1,800 $1,150

Receivables 1,750 1,300

Inventory 1,600 1,900

Plant assets 1,900 1,700

Accumulated depreciation (1,200) (1,170)

Long-term investments (held-to-maturity) 1,300 1,420

$7,150 $6,300

Accounts payable $1,200 $900

Accrued liabilities 200 250

Bonds payable 1,400 1,550

Capital stock 1,900 1,700

Retained earnings 2,450 1,900

$7,150 $6,300

PAT METHENY COMPANY
INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014

Sales revenue $6,900

Cost of goods sold 4,700

Gross margin 2,200

Selling and administrative expenses 930

Income from operations 1,270

Other revenues and gains

Gain on sale of investments 80

Income before tax 1,350

Income tax expense 540

Net income $810

Cash dividends 260

Income retained in business $550

Additional information:

During the year, $70 of common stock was issued in exchange for plant assets. No plant assets were sold in 2014.

Prepare a statement of cash flows using the direct method. (Show amounts that decrease cash flow with either a - sign e.g. -25,000 or in parenthesis e.g. (25,000).)