Problem 5-7 (Part Level Submission) Ayayai Inc. had the following balance sheet
ID: 2547046 • Letter: P
Question
Problem 5-7 (Part Level Submission)
Ayayai Inc. had the following balance sheet at December 31, 2016.
AYAYAI INC. BALANCE SHEET DECEMBER 31, 2016 Cash $ 23,940 Accounts payable $ 33,940 Accounts receivable 25,140 Bonds payable 44,940 Investments 32,000 Common stock 103,940 Plant assets (net) 84,940 Retained earnings 27,140 Land 43,940 $209,960 $209,960
During 2017, the following occurred. 1. Ayayai liquidated its available-for-sale investment portfolio at a loss of $8,940. 2. A tract of land was purchased for $41,940. 3. An additional $30,000 in common stock was issued at par. 4. Dividends totaling $13,940 were declared and paid to stockholders. 5. Net income for 2017 was $38,940, including $15,940 in depreciation expense. 6. Land was purchased through the issuance of $33,940 in additional bonds. 7. At December 31, 2017, Cash was $74,140, Accounts Receivable was $45,940, and Accounts Payable was $43,940.
Explanation / Answer
a. Statement of cash flow
Cash flow from Operating activities
Net income 38940
add: Depreciation 15940
loss of available-for-sale investment 8940
63820
increase in Accounts Receivable (20800)
increase in Accounts payable 10000
Net cash provided by Operating activities $53020
Cash flow from Financing activities
Issue of common stock 30000
Dividend paid (13940)
Net cash provided by Financing activities $16060
Cash flow from Investing activities
Purchase of land (41940)
sale of investment [ 32,000 - $8,940] 23060
Net cash used by investing activities (18880)
Net increase in cash $50200
Add: Cash at beginning $ 23,940
Cash at End $74,140
Non cash investing and financing activities:
. Land was purchased through the issuance of Bonds $33,940
b. AYAYAI INC. BALANCE SHEET DECEMBER 31, 2017
Assets Liabilities and shareholder's equity
Cash $74,140 Accounts Payable $43,940
Accounts Receivable $45,940 Bonds payable [44,940+33940] 78880
Land [$33,940 +43,940+41940 ] 119820 common stock [$30,000+103,940] 133940
Plant assets (net) Retained earnings
[84,940 - $15,940] 69000 [ 27,140 + 38940 - 13940] 52140
Total Assets $308900 Total Liabilities and shareholder's equity $308900
c. Current Cash debt coverage ratio = Cash flow from Operating activities / Average current liabilities
= $53020 / {[$43,940 +33,940 ] / 2}
= $53020 / $38940
= 1.36
Cash debt coverage ratio = Cash flow from Operating activities / Total liabilities
= $53020 / $122820
= 0.43