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    Statement of Cash Flows (Indirect Method); Cash-Basis Ratios

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    The Financial Statements of Frank B Robinson Company appear below:
    Comparative Balance Sheets

    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

    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
    Administrative expenses 10,000 24,000
    Income from operations 16,000
    Interest expense 2,000
    Income before income taxes 14,000
    Income tax expense 4,000
    Net income 10,000

    Additional Information
    ?          Dividends declared and paid were $3,000
    ?          During the year equipment was sold for $ 8,500 cash. The equipment cost $ 18,000 originally and had a book value of $ 8500 at the time of sale
    ?          All depreciation are in the selling expenses category
    ?          All sales and purchases are on account


    (a) Prepare a statement of cash flows using the indirect method
    (b) Computer the following cash-basis ratios:
    - Current caseh debt coverage ratio
    - Cash return on sales ratio
    - Cash debt coverage ratio

    Please see attachment for table and additional info on question.

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    Solution Preview

    see attached file

    We need to calculate the depreciation for the year
    Purchase price of the machine sold: $18,000
    Book value of the machine sold: $8,500
    Therefore accumulated depreciation of the machine sold= $9,500 =18000-8500

    Accumalated depreciation at the end of period = Accumalated depreciation at the beginning of period + Depreciation for the period - accumulated depreciation of the machine sold

    or 20000 = 24000 + Depreciation expense- $9,500
    or Depreciation expense = $5,500 =20000-24000+9500

    Therefore depreciation expense for the period= $5,500

    The Cash Flows from the sale of equipment = $8,500
    (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.)

    (a) Prepare a statement of cash flows using the indirect method.

    Statement of Cash Flows - Indirect Method
    For the year ending ...

    Solution Summary

    Statement of Cash Flows is prepared using Indirect Method. Also cash-basis ratios (Current caseh debt coverage ratio, Cash return on sales ratio, Cash debt coverage ratio) are calculated.