Question

Use worksheet method for #1

example is exhibit 12-15

1. Prepare a statement of cash flows for Gallagher, Inc., for the year ended December 31, 2017 using the indirect method in the Operating Activities section of the statement. Note. Use the T-account method (illustrated in class) or Work-sheet Approach (illustrated in the Appendix to Chapter Twelve, pages (586-588) to derive the solution, including a legend at the bottom of the T-accounts / Work Sheet cross-referenced to the numbers in the T-accounts / Worksheet to explain your solution. Show your work. 2. Gallagher's management is concerned with its short-term liquidity and its solvency over the long run. To help management evaluate these, compute the following ratios, rounding all answers to the nearest one-tenth of a percent. a. Current ratio b. Acid-test ratio c. Cash flow from operations to current liabilities ratio d. Accounts receivable turnover ratio e. Number of days' sales in receivables f. Inventory turnover ratio g. Number of days' sales in inventory h. Debt-to-equity ratio i. Debt service coverage ratio j. Cash flow from operations to capital expenditures ratio 3. Comment on Gallagher's liquidity and its solvency. What additional information do you need to fully evaluate the company?

Answer 1

		Gallagher Inc.
		Statement of Cash Flow
1)		For the year ended December 31,2016
		Cash flows from operating activities
	A	Net income after tax (as per statement)		$3,440.00
		Adjustments to net income
		Depreciation=($3700-$3000)	$700.00
		Increase in accounts receivable=($12500-$9000)	($3,500.00)
		Increase in inventories=($8000-$5500)	($2,500.00)
		Decrease in Prepaid Insurance=($100-$400)	$300.00
		Increase in accounts payable=($7300-$5000)	$2,300.00
		Increase in Notes Payable=($2400-$1600)	$800.00
		Increase in Taxes Payable=($4600-$4200)	$400.00
	B			($1,500.00)
	A-B	Net cash provided by operating activities=(C)		$1,940.00
		Cash flows from investing activities
		Purchase of fixed Assets($12000-$9000)	($3,000.00)
		Net cash provided by investing activities =(D)		($3,000.00)
		Cash flows from financing activities
		Retirement of Bonds	($200.00)
		Dividend to Preferred Stock	($100.00)
		Dividends to common stock	($500.00)
		Net cash provided by financing activities=(E )		($800.00)
	F = 'C+D+E	Change in cash=(C)+(D)+(E )		($1,860.00)
	G	Cash, beginning balance		$2,700.00
	F+G	Cash, ending balance		$840.00
		Building
		Particular	Amount	Particular
		To Bal b/d	$9,000.00	By Bal C/d
		To Cash(Balancing Figure)	$3,000.00
			$12,000.00
		Workings:-
		Retained Earnings Statement
		Beginning Retained Earnings	$12,000.00
		Add: Net Income	$3,440.00
		Less: Dividend Paid	$600.00
		Ending Retained Earnings	$14,840.00
2)		Ratios
	a)	Current Ratio=Current Assets/Current Liabilities
		Current Assets
		Cash	$840.00
		Accounts Receivable(net)	$12,500.00
		Inventory	$8,000.00
		Prepaid Insurance	$100.00
		Total Current Assets	$21,440.00
		Current Liabilities	$14,500.00
		Current Ratio   = ($21440 / $ 14500)   =	1.48
	b)	Acid-test Ratio=Quik Assets/Current Liabilites
		Quick Assets
		Cash	$840.00
		Accounts Receivable	$12,500.00
		Total Quick Assets	$13,340.00
		Current Liabilities	$14,500.00
		Quick Ratio= ($13340 / $ 14500)   =	0.92
	c)	Cash flow from operation /Current Laibilities ratio
		Cash Flow from Operation	1940
		Current Liabilities	14500
		Cash flow from operation/Current Liabilities=($1940/$14500)	0.13
	d)	Accounts Receivable Turnover Ratio=Net Credit Sales/Average Debtors
		Net Sales	48000
		Average Debtors=(12500+9000)/2	10750
		Accounts Receivable Turnover Ratio=($48000/$10750)	4.47	Times