Shown on the next page are the financial statements of Klemmer Company.
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KLEMMER COMPANY |
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Assets |
2012 |
2011 |
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Cash |
$ 25,000 |
$ 33,000 |
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Accounts receivable |
23,000 |
14,000 |
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Inventory |
41,000 |
25,000 |
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Property, plant, and equipment |
$ 73,000 |
$ 78,000 |
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Less: Accumulated depreciation |
(27,000) |
46,000 |
(24,000) |
54,000 |
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Total |
$135,000 |
$126,000 |
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Liabilities and Stockholders” Equity |
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Accounts payable |
$ 23,000 |
$ 46,000 |
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Income taxes payable |
26,000 |
23,000 |
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Bonds payable |
20,000 |
10,000 |
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Common stock |
25,000 |
25,000 |
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Retained earnings |
41,000 |
22,000 |
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Total |
$135,000 |
$126,000 |
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KLEMMER COMPANY |
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Sales |
$295,000 |
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Cost of goods sold |
194,000 |
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Gross profit |
101,000 |
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Selling expenses |
$28,000 |
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Administrative expenses |
9,000 |
37,000 |
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Income from operations |
64,000 |
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Interest expense |
7,000 |
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Income before income taxes |
57,000 |
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Income tax expense |
13,000 |
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Net income |
$ 44,000 |
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Additional data:
1. Depreciation expense was $6,000.
2. Dividends of $25,000 were declared and paid.
3. During the year, equipment was sold for $10,000 cash. This equipment cost $13,000 originally and had accumulated depreciation of $3,000 at the time of sale.
4. Additional equipment was purchased for $8,000 cash.
Instructions
(a) Prepare a statement of cash flows using the indirect method.
(b) Compute these cash-based measures:
(1) Current cash debt coverage ratio.
(2) Cash debt coverage ratio.
(3) Free cash flow.