You are provided with the following transactions that took place during the year
ID: 2480478 • Letter: Y
Question
You are provided with the following transactions that took place during the year. For each transaction listed above, indicate whether it will increase (I), decrease (D), or have no effect (NE) on the ratios.
Transactions
Free Cash Flow ($80,000)
Current Cash Debt Coverage (0.7 times)
Cash Debt Coverage (0.4 times)
(a)
Recorded cash sales $4,800.
(b)
Sold land for $20,000 cash.
(c)
Declared $6,000 cash dividends.
(d)
Paid $5,800 cash dividends declared last year.
(e)
Paid amount owed to suppliers, $9,400.
(f)
Retired $20,000 convertible bonds payable by issuing common stock.
Transactions
Free Cash Flow ($80,000)
Current Cash Debt Coverage (0.7 times)
Cash Debt Coverage (0.4 times)
(a)
Recorded cash sales $4,800.
(b)
Sold land for $20,000 cash.
(c)
Declared $6,000 cash dividends.
(d)
Paid $5,800 cash dividends declared last year.
(e)
Paid amount owed to suppliers, $9,400.
(f)
Retired $20,000 convertible bonds payable by issuing common stock.
Explanation / Answer
Transactions Free Cash Flow ($80,000) Current Cash Debt Coverage (0.7 times) = Net Cash Provided by Operating Activities/Avg. CurrentLiabilities Cash Debt Coverage (0.4 times) =Net Cash Provided by Operating Activities/Avg. Total Liabilities (a) Recorded cash sales $4,800. Increase Increase Increase (b) Sold land for $20,000 cash. Increase Not Effect Not Effect (c) Declared $6,000 cash dividends. Decrease Not Effect Not Effect (d) Paid $5,800 cash dividends declared last year. Decrease Decrease Decrease (e) Paid amount owed to suppliers, $9,400. Decrease Decrease Decrease (f) Retired $20,000 convertible bonds payable by issuing common stock. No Effect No Effect No Effect
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