Question

b. Prepare an unclassifie c. How might the statement flow ratios. an unclassified balance sheet as it would appear at December 31, 2020. ght the statement of cash flows help the user of the financial statements? Compute two cash P5.7 (LO 2, 3) Groupwo 3) Groupwork (Preparation of a Statement of Cash Flows and Balance Sheet) ne had the following balance sheet at December 31, 2019. Cash Accounts receivable Investments Plant assets (net) Land Aero Inc. Balance Sheet December 31, 2019 $ 20,000 Accounts payable 21.200 Bonds payable Bonds payable 32,000 Common stock 81,000 Retained earnings 40,000 $194,200 $ 30,000 41,000 100,000 23,200 $194,200 During 2020, the following occurred. 1. Aero liquidated its available-for-sale debt investment portfolio at a loss of $5,000. 2. A tract of land was purchased for $38,000. 3. An additional $30,000 in common stock was issued at par. 4. Dividends totaling $10,000 were declared and paid to stockholders. 5. Net income for 2020 was $35,000, including $12,000 in depreciation expense. 0. Land was purchased through the issuance of $30,000 in additional bonds. 7. At December 31, 2020, Cash was $70,200, Accounts Receivable was $42,000, and Accounts Payable was $40,000 Instructions 4. Prepare a statement of cash flows for the year 2020 for Aero. repare the unclassified balance sheet as it would appear at December 31, 2020. Compute Aero's free cash flow and current cash debt coverage for 2020. the analysis of Aero to illustrate how information in the balance sheet and statement of cash Tlows helps the user of the financial statements. Concepts for Analysis CA5.1 (LO 2 2) (Renarting the pinnal offerte of Varied Transactions) In an examination of

Answer 1

A.)    AERO INC Statement of Cash Flow For the Year Ended December 31, 2020

Cash Flow From Operating Activities;
Net Income		$35,000
Adjustment to reconcile net income to net cash provided by operating activities
Depreciation Expanse	$12,000
Loss on sale of Investment	$5,000
Increase in accounts payable ($40,000 - $30,000)	$10,000
Increase in accounts Receivable ($42,000 -$21,200)	$(20,800)	$6,200
Net Cash Provided by Operating Activities		$41,200
Cash Flow from Investing Activities
Sale of Investment ($32,000-$5,000)	$27,000
Purchase of Land	$(38,000)
Net Cash Used by Investing Activities		$(11,000)
Cash Flow from Financing Activities;
Issuance of Common Stock	$30,000
Payment of Cash Dividends	$(10,000)
Net Cash Provided by Financing Activities		$20,000
Net Increase in Cash		$50,200
Cash at beginning of Year		$20,000
Cash at end of Year		$70,200

B.) AERO INC Balance Sheet December 31, 2020   

Asset	Amount	Liabilities and Stockholders Equity	Amount
Cash	$70,200	Accounts Payable	$40,000
Accounts Receivable	$42,000	Bond Payable	$71,000
Plant Asset	$69,000	Common Stock	$130,000
Land	$108,000	Retained Earnings	$48,200
Total Asset	$289,200	Total Liability and Stockholders Equity	$289,200

Explanation;

Plant Asset = $81,000 - $12,000 = $69,000

Land = $40,000 + $38,000 + $30,000 = $108,000

Bond Payable = $41,000 + $30,000 = $71,000

Common Stock = $100,000 + $30,000 = $130,000

Retained Earnings =$23,200+$35,000-$10,000=$48,200

C.)..... Free Cash Flow

Net Cash Provided by Operating Activities	$41,200
Less: Purchase of Land	$38,000
Dividend	$10,000
Free Cash Flow	$(6,800)

Current Cash Debt Coverage = 1.18 to 1

= ( $41,200/$35,000)

*($30,000 + $40,000)÷ 2 = $35,000

D. ).....This information is helpful to find out the amount, Uncertinity of future cash flow and timing . It shows specific inflows and outflow from operating activities , investing Activities and Financing Activities, the user has a better understanding of financial flexibility and liquidity . It also help users to make more accurate predictions of future cash flow . Similarly, it also useful in providing feed back about the flow of enterprise resources.