Question

A comparative balance sheet for Teal Corporation is presented as follows.

		December 31
Assets		2020			2019
Cash		$ 72,810			$ 22,000
Accounts receivable		83,460			67,650
Inventory		181,460			190,650
Land		72,460			111,650
Equipment		261,460			201,650
Accumulated Depreciation-Equipment		(70,460	)		(43,650	)
Total		$601,190			$549,950
Liabilities and Stockholders' Equity
Accounts payable		$ 35,460			$ 48,650
Bonds payable		150,000			200,000
Common stock ($1 par)		214,000			164,000
Retained earnings		201,730			137,300
Total		$601,190			$549,950

Additional information:

1.		Net income for 2020 was $127,920. No gains or losses were recorded in 2020.
2.		Cash dividends of $63,490 were declared and paid.
3.		Bonds payable amounting to $50,000 were retired through issuance of common stock.

Prepare a statement of cash flows for 2020 for Teal Corporation. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Determine Teal Corporation’s current cash debt coverage, cash debt coverage, and free cash flow. (Round current cash debt coverage and cash debt coverage to 2 decimal places., e.g. 0.67.)

Current cash debt coverage			:1
Cash debt coverage			:1
Free cash flow		$

Comment on its liquidity and financial flexibility.

Teal has                                                                       excellentpoor liquidity. Its financial flexibility is

Answer 1

Cash flow from indirect method
Cash flow from operating activities
Net profit before taxation and extraordinary items		127920
Depreciation		26810
operating profit before working capital		154730
Increase in account receivable		(15810)
Decrease in inventory		9190
Decrease in accounts payable		(13190)
retained earnings
Cash generated from operations		134920
income tax paid		0
Net cash from operating activities		134920
Cash flow from investing activities
Sale of land	39190
Purchase of equipment	(59810)
Net cash from investing activities	(20620)	(20620)
Cash flow from financing activities
Dividend paid	(63490)
Net cash used for financing activities	(63490)	(63490)
Net cash increase in cash and cash equivalents		50810
Opening cash balance		22000
Closing cash balance		72810

Note:

1. Retained earnings are not recorded in the cash flow statement. The amount left after paying out the dividends to the shareholders from the net income or profits of the company is known as retained earnings.

2. Changes in bonds payable and common stock not effected in cash flow statement. because of shares issued for bonds payable.