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    P4-5B The financial statements of Frank B. Robinson Company

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    P4-5B The financial statements of Frank B. Robinson Company appear below:

    FRANK B. ROBINSON COMPANY
    Comparative Balance Sheets
    For the Year Ended December 31, 2002

    Assets 2002 2001
    Cash $29,000 $13,000
    Accounts receivable 28,000 14,000
    Merchandise inventory 25,000 35,000
    Property, plant, and equipment 60,000 78,000
    Accumulated depreciation (20,000) (24,000)
    Total $122,000 $116,000
    Liabilities and Stockholders' Equity
    Accounts payable $27,000 $23,000
    Income taxes payable 5,000 8,000
    Bonds payable 27,000 33,000
    Common stock 18,000 14,000
    Retained earnings 45,000 38,000
    Total $122,000 $116,000

    FRANK B. ROBINSON COMPANY
    Income Statement
    For the Year Ended December 31, 2002
    Sales $220,000
    Cost of goods sold 180,000
    Gross profit 40,000
    Selling expenses $14,000 $14,000
    Administrative expenses 10,000 24,000 10,000 24,000
    Income from operations 16,000 16,000
    Interest expense 2,000 2,000
    Income before income taxes 14,000 14,000
    Income tax expense 4,000 4,000
    Net income $ 10,000 $10,000

    Additional information:
    1. Dividends declared and paid were $3,000.
    2. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally
    and had a book value of $8,500 at the time of sale.
    3. All depreciation expense is in the selling expense category.
    4. All sales and purchases are on account.

    Instructions
    (a) Prepare a statement of cash flows using the indirect method.
    (b) Compute the following cash-basis ratios.
    (1) Current cash debt coverage ratio.
    (2) Cash return on sales ratio.
    (3) Cash debt coverage ratio.

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    Solution Preview

    For the ratios, I attached a word document so that you have the formula for calculating the ratios.

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    Solution Summary

    The solution includes an excel sheet of the statement of cash flows for Frank B. Robinson Company as well as calculations of the following ratios:
    (1) Current cash debt coverage ratio.
    (2) Cash return on sales ratio.
    (3) Cash debt coverage ratio.

    $2.19

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