Super stuck on this, please help me with this problem. Thank you. Presented belo

Question

Super stuck on this, please help me with this problem. Thank you. Presented below are the financial statements of Kurtzel Company. KURTZEL COMPANY Comparative Balance Sheets December 31 Assets 2014 2013 Cash $ 35,000 $ 20,000 Accounts receivable 20,000 14,000 Inventory 28,000 20,000 Property, plant, and equipment 60,000 78,000 Accumulated depreciation (32,000) (24,000) Total $ 111,000 $108,000 Liabilities and Stockholders’ Equity Accounts payable $19,000 $15,000 Income taxes payable 7,000 8,000 Bonds payable 17,000 33,000 Common stock 18,000 14,000 Retained earnings 50,000 38,000 Total $111,000 $108,000 KURTZEL COMPANY Income Statement For the Year Ended December 31, 2014 Sales revenue $242,000 Cost of goods sold 175,000 Gross Profit 67,000 Selling expenses $18,000 Administrative expenses 6,000 24,000 Income from operations 43,000 Interest expense 3,000 Income before income taxes 40,000 Income tax expense 8,000 Net income $ 32,000 Additional data: 1. Depreciation expense was $17,500. 2. Dividends declared and paid were $20,000. 3. During the year equipment was sold for $8,500 cash. This equipment cost $18,000 originally and had accumulated depreciation of $9,500 at the time of sale. Directions: (a) Prepare a statement of cash flows using the indirect method. (b) Compute these cash-based measures: (1) Current cash debt coverage. (2) Cash debt coverage. (3) Free cash flow.

Explanation / Answer

KURTZEL COMPANY (All amounts in $) Cash Flow Statement for the year ended 31 December 2014 Cash Flows from Operating Activities Net Income per Income Statement 32000 Add : Depreciation Expense 17500 Add : Interest Expense 3000 Add : Income Taxes Paid 8000 28500 Cash Flows before Working Capital changes 60500 Less : Increase in Accounts Receivable -6000 Less : Increase in Inventory -8000 Add : Increase in Accounts Payable 4000 Less : Decrease in Income Taxes Payable -1000 -11000 Net Cash Inflows from Operating Activities 49500 Cash Flows from Investing Activities Sale of Equipment 8500 Repayment of Bonds Payable -16000 -7500 Cash Flows from Financing Activities Issue of Common Stock 4000 Interest Paid -3000 Income Taxes Paid -8000 Dividends Paid -20000 -27000 Net Cash Inflows for the year 15000 Opening Cash and Cash Equivalents 20000 Closing Cash and Cash Equivalents 35000 (1) Net Cash provided by Operating Activities = 49500 Average Current Liabilities = 24500 Hence, the Current Cash Debt Coverage Ratio = 2.020408 : 1 (2) Cash Debt Coverage Ratio = Net Cash provided by operating activities / Closing Current Liabilities Thus, the Cash Debt Coverage Ratio = 1.903846 : 1 (3) Free Cash Flow = Net Cash provided by Operating Activities - Capital Expenditures Since there is no capital expenditure incurred during the year, hence the Free Cash Flow will be equal to $ 49,500 only.

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