Answer:
Sarasota Corporation
1. Statement of Cash Flows for the year ended December 31, 2020:
Operating Activities:
Net Income $129,720
Non-cash adjustment:
Depreciation 26,680
Cash from operating $ 156,400
Changes in working capital:
Accounts Receivable (15,680)
Inventory 9,320
Accounts Payable (13,320)
Net cash from operating activities $136,720
Investing Activities:
Land 39,320
Equipment (59,680)
Net cash from investing activities $(20,360)
Financing Activities:
Cash dividends $(65,680)
Net cash inflows $50,680
2. Sarasota Corporation's:
a) Current Cash Debt Coverage = Cash from operating activities/Current liabilities
= $136,720/$36,360
= 3.76
b) Cash Debt Coverage = Cash from operating activities/Total liabilities
= $136,720/$186,360
= 0.73
c) Free Cash Flow = Cash from operating activities minus Capital expenditure
= $136,720 - 59,680
= $77,040
Explanation:
a) Data and Calculations:
Sarasota Corporation
Comparative Balance Sheets
As of December 31 2020 and 2019:
Assets 2020 2019 Increase Decrease
Cash $ 72,680 $ 22,000 $50,680
Accounts receivable 84,360 68,680 15,680
Inventory 182,360 191,680 $9,320
Land 73,360 112,680 39,320
Equipment 262,360 202,680 59,680
Accumulated Depreciation-Equipment
(71,360) (44,680) 26,680
Total $603,760 $553,040
Liabilities and Stockholders' Equity
Accounts payable $ 36,360 $ 49,680 13,320
Bonds payable 150,000 200,000 50,000
Common stock ($1 par) 214,000 164,000 50,000
Retained earnings 203,400 139,360
Total $603,760 $553,040
b) The decrease in bonds is not a cash flow. The increase in Common Stock is not a cash flow. The two are exchanges. In calculating the free cash flow, the cash proceeds from sale of land were not taken into consideration because the sale was a one-off transaction and not part of the operating activities of Sarasota Corporation.
