Exercise 5-18 The comparative balance sheets of Madrasah Corporation at the begi

Question

Exercise 5-18 The comparative balance sheets of Madrasah Corporation at the beginning and end of the year 2014 appear below MADRASAH CORPORATION BALANCE SHEETS Dec. 31, 2014 Jan. 1, 2014 Inc./De Assets Cash Accounts receivable Equipment Less: Accumulated Depreciation- Equipment $22,087 108,087 41,087 (17,000 ) $154,261 $14,408 89,408 23,408 (11,000) $7,679 Inc. 18,679 Inc. 17,679 Inc. 6,000 Inc. $116,224 Total Liabilities and Stockholders' Equity Accounts payable Common stock Retained earnings $22,087 102,087 30,087 $154,261 $16,408 81,408 18,408 $116,224 5,679 Inc. 20,679 Inc. 11,679 Inc. Total Net income of $46,087 was reported, and dividends of $34,408 were paid in 2014. New equipment was purchased and none was sold

Explanation / Answer

Csh flow statemnet Cash flow from operating activity Net income 46087 Add Depriciation ( 17000-11000) 6000 Increase in accounts payable 5679 11679 Less Increase in accounts receivable 18679 18679 Net cash flow from operations 39087 Cash flow from investing activity Purchase of equipment -17679 Net cash flow from investing activity -17679 Cash flow from financing activity Issuance of common stock 20679 Less Dividend paid 34408 -13729 Net cash flow from financing activity -13729 Cash flow for the period 7679 Cash - opening balance 14408 Cash - ending balance 22087 Cash movemnet for the period 7679 Dec 31 2014 Jan 1 2014 Current Assets Cash 22087 14408 Accounts receivable 108087 89408 Total 130174 103816 Accounts payable 22087 16408 Total current liabilities 22087 16408 Current ratio 5.89 6.33 Current ratio = Current Assets / Current liabilities Free cash flo for 2014 = Cash flow from operating activity - fixed asset purchases Cash flow from operating activity 39087 Less equipment purchased 6000 Free cash flow 33087 The company is highly liquid , as its current rati o is very healthy and it has a healthy positive free cash flow

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