Question

BENETEAU CORPORATION
Comparative Balance Sheet
2017 2016
Assets
Cash $37,000 $31,000
Accounts receivable (net) 80,000 60,000
Prepaid insurance 22,000 17,000
Land 18,000 40,000
Equipment 70,000 60,000
Accumulated depreciation (20,000) (13,000)
Total assets $207,000 $195,000
Liabilities and Stockholder's Equity
Accounts payable $12,000 $6,000
Bonds payable 27,000 19,000
Common stock 140,000 115,000
Retained earnings 28,000 55,000
Total liabilities and stockholder's equity $207,000 $195,000
Additional information:
1. Net loss for 2017 is $12,000. Net sales for 2017 are $250,000.
2. Cash dividends of $15,000 were declared and paid in 2017.
3. Land was sold for cash at a loss of $2,000. This was the only land transaction during the year.
4. Equipment with a cost of $15,000 and accumulated depreciation of $10,000 was sold for $5,000 cash.
5. $12,000 of bonds were retired during the year at carrying (book) value.
6. Equipment was acquired for common stock. The fair value of the stock at the time of the exchange was $25,000
Required:
1. Prepare a statement of cash flows for the year ended December 31, 2017, using the indirect method.

Answer 1

Answer:

A cash flow statement  for the year ended December 31, 2017,using indirect method was prepared for BENETEAU CORPORATION.

Explanation:

Solution

Prepare the cash flow statement using indirect method as follows:

Statement of cash flows for the year ended December 31, 2017, using the indirect method.

B Corporation

Statement of Cash Flows  For the Year Ended December 31, 2017

Cash flows from operating activities:

Net loss=-12000

Adjustments to reconcile net loss with cash flows from operating activities:

Depreciation ($20,000 + $10,000 - $13,000) = 17000

Loss on sale of land = 2000

Increase in accounts receivable= -20000

Increase in prepaid expenses=-5000

Increase in accounts payable=6000

Net cash used in operating activities=-12000

Cash flows from investing activities:

Sale of land ($40,000 - $18,000 - $2,000) =20000

Sale of equipment =5000

Net cash generated by investing activities =25000

Cash flows from financing activities:

Retirement of bonds=-12000  

Proceeds from issuance of bonds=20000  

Dividends paid=-15000

Net cash used by financing activities=-7000

Net increase in cash=6000

Add: Beginning cash balance=31000

Ending cash balance=37000

Now:

(1) The Calculation of Depreciation:

The accumulated Depreciation at end of 2017 = $ (20,000)

Thus,

Accumulated Depreciation at end of 2017 = $ (13,000)

Increase in Accumulated Depreciation during 2017 = 20,000 - 13,000 = $ 7,000

Add: Accumulated depreciation on equipment sold during 2017 = $ 10,000

Total Depreciation expense for 2017 = $ 7,000 + 10,000 = $ 17,000

(2) Calculation of Proceeds from the sale of land:

The land cost sold = $ 40,000 - 18,000 = $ 22,000

The sale of the loss of land  = $ 2,000

Hence,

Proceeds from sale of land = Cost of land sold - Loss on sale of land = $ 22,000 - 2,000 = $ 20,000

(3) Calculation of Issuance of bonds payable during 2017

The Bonds Payable at the end of 2016 = $ 19,000

So,

Bonds Payable at the end of 2017 = $ 27,000

Retirement of bonds during 2017 = $ 12,000

Bonds issued during 2017 = $ 27,000 + 12,000 - 19,000 = $ 20,000

Now,

(a) Calculation of Current cash debt Coverage times:

Current cash debt Coverage times = Net cash provided by operating activities / Average current liabilities

Provision of net cash operating activities = ($12,000)

The current average  liabilities = (Opening current liabilities + Closing current liabilities) / 2

= (12,000 + 6,000) / 2 = $ 9,000

Current cash debt Coverage times = ($12,000) / $ 9,000 = -1.33 times

(b) Calculation of Cash debt coverage times:

Cash debt coverage times = Net cash provided by operating activities / Average total liabilities

Thus,

Net cash provided by operating activities = ($12,000)

Average Total liabilities = (Opening Total liabilities + Closing Total liabilities) / 2

= ($ 25,000 + 39,000) / 2 = $ 32,000

Therefore, the cash debt coverage times = ($12,000) / $32,000 = -0.375 = -0.38 times