Shown are the comparative balance sheets of Dang Corporation for
December 31, 2019 and 2018:
December 31
2019
2018
Cash and cash equivalents ..................................
$ 350,000
$ 320,000
Accounts receivable
.............................................
327,600
356,000
Inventories
...........................................................
822,000
780,000
Available-for-sale securities
................................
0
200,000
Equipment
...........................................................
2,400,000
2,040,000
Accumulated depreciation ...................................
(700,000)
(760,000)
$3,199,600
$2,936,000
Accounts payable
...............................................
$ 459,000
$ 381,000
Bonds payable, due 2019 ...................................
0
400,000
Common stock, $20 par ......................................
1,800,000
1,600,000
Paid-in capital in excess of par ...........................
280,000
200,000
Retained earnings
...............................................
660,600
355,000
$3,199,600
$2,936,000
Additional information:
(a)
Net income for 2019, $545,600.
(b)
Depreciation reported on income statement, $140,000.
(c)
Fully depreciated equipment, no salvage value, was scrapped.
Equipment was purchased for $560,000.
(d)
Bonds of $400,000 had been issued at par; retirement in 2019
resulted in no gain or loss.
(e)
10,000 shares of common stock were issued for cash at $28 per
share.
(f)
Cash dividends declared and paid, $240,000.
(g)
Available-for-sale securities were sold for $300,000.
3-1. Prepare a statement of cash flows
for Dang Corporation for 2019, using the indirect method.
3-2. Compute the current cash debt
coverage, cash debt coverage, free cash flow, and cash flow to net
income ratios
3-3. What does cash debt coverage mean? If this is less than
one, what does that imply?
3-4. If cash flow to net income is less than one, what does that
mean?
3-5. Interpret the results of the free cash flow ratio you
computed in 3-2.