Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN: 9781305654174
Author: Gary A. Porter, Curtis L. Norton
Publisher: Cengage Learning
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Chapter 12, Problem 12.19E
1.
To determine
Introduction:The ratio that is used to calculate if enough cash flows are generated by operation to pay off the expenses is termed as cash adequacy ratio. It suggests the ability of a company to cover up its annual cost of debt with the help of cash flow from operations.
To calculate:The cash flow adequacy ratio of the company.
2.
To determine
Introduction: The ratio that is used to calculate if enough cash flows are generated by operation to pay off the expenses is termed as cash adequacy ratio. It suggests the ability of a company to cover up its annual cost of debt with the help of cash flow from operations.
To state:The importance of cash adequacy ratio and how the ratio derived in part 1 can be used in determining if a company is eligible for loan or not.
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Analyzing Cash Flow Ratios
Meagan Enterprises reported the following information for the past year of operations:For each transaction, indicate whether the ratio will (I) increase, (D) decrease, or (N) have no effect.
Transaction
FreeCash Flow$400,000
Operating-Cash-Flow-to-Current Liabilities Ratio1.1 times
Operating-Cash-Flow-to-Capital Expenditures Ratio5.0 times
a. Recorded credit sales of $17,000
b. Collected $6,000 owed from customers
c. Purchased $50,000 of equipment on long-term credit
d. Purchased $70,000 of equipment for cash
e. Paid $17,000 of wages with cash
f. Recorded utility bill of $14,750 that has not been paid
Duning the year, Next Tec Corp. had the following cash flows receipt trom customers, $21,000, receipt from the bank for long term borrowing. $6,200, payment to supplers, $5,200, payment of dividends, $1700, payment to workers, $3.000, and payment for machenery
$9,000. What amount would be reported for net financing cash flows in the statement of cash fows?
Mutiple Choice
S4500
$6 200
(19,000
SA000
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Cash Flow RatiosSpencer Company reports the following amounts in its annual financial statements:
Cash flow from operating activities
$90,000
Capital expenditures
$59,500*
Cash flow from investing activities
(68,000)
Average current assets
136,000
Cash flow from financing activities
(8,500)
Average current liabilities
102,000
Net income
42,500
Total assets
255,000
* This amount is a cash outflowa. Compute Spencer's free cash flow.b. Compute Spencer's operating-cash-flow-to-current-liabilities ratio.c. Compute Spencer's operating-cash-flow-to-capital-expenditures ratio.
Round ratios to two decimal points.
a. Free cash flow
Answer
b. Operating-cash-flow-to-current-liabilities ratio
Answer
c. Operating-cash-flow-to-current-expenditures ratio
Answer
Chapter 12 Solutions
Financial Accounting: The Impact on Decision Makers
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