Question

Statement of Cash Flows (Direct Method) The Artic Company's income statement and comparative balance sheets at December 31 of 2019 and 2018 are shown below: ARTIC COMPANY Income Statement For the Year Ended December 31, 2019 Sales Revenue 5615.000 Cost of Goods Sold $430.000 Wages Expense 91,000 Insurance Expense 12,000 Depreciation Expense 13,000 Interest Expense 15,000 Income Tax Expense 29.000 590.000 Net Income $55,000 ARTIC COMPANY Balance Sheets Dec 31, 2019 Dec 31, 2018 $41.000 41.000 30.000 5.000 219.000 168.000 $328.000 $8,000 32,000 65,000 7,000 202.000 55.000 $259,000 Cash Accounts Receivable Inventory Prepaid Insurance Plant Assets Accumulated Depreciation Total Assets Liabilities and Stockholders' Equity Accounts Payable Wapes Pavable Income Tax Payable Bonds Payable Comnar Stock Retained Earnings Total Liabilities and Stockholders' Equity $7,000 10,000 6,000 141,000 20,000 74,000 $328,000 $10,000 6,000 7,000 87,000 90,000 59,000 $259,000 Cash dividends of $40,000 were declared and paid during 2019. Plant assets were purchased for cash and bonds payable were issued for cash. Bond interest is paid semi-annually on June 30 and December 31. Accounts payable relate to merchandise purchases. Required a. Calculate the change in cash that occurred during 2019 b. Prepare a statement of cash flows using the direct method. . Campute free cash flow. d. Compute the operating-cash-flow-to-current-liabilities ratio. e. Compute the operating-cash-flow-to-capital-expenditures ratio. a. Change in Cash during 2019 $ O *

Answer 1

Answer with working notes is given below

$33,000 ($41,000-$8,000) a) Change in Cash during 2019 b) Cash Flow Statement under Direct method Cash flows from Operating Activities Amount $636,000 Cash received from customers -$458,000 -$87,000 Cash paid for Merchandise Purchased Cash paid to Employees Cash paid for Insurance -$10,000 -$15,000 -$30,000 ($600,000) $36,000 Cash paid for Interest Cash paid for Income taxes Net Cash provided by Operating Activities Cash flows from Investing Activities ($17,000) ($219,000- $202,000) Purchase of Plant Assets Cash flows from Financing Activities $54,000 -$40,000 |($141,000- $87,000) Issuance of Bonds payable Payment of Dividends Net Cash provided by Financing Activities $14,000 $33,000 Net change in cash Opening balance of cash Closing balance of cash $8,000 $41,000 c) Free Cash flows $36,000 ($17,000) $19,000 Net cash provided by Operating Activities Less: Fixed Assets purchased Free Cash flows Operating cash flow to Current Liabilities ratio Operating cash flow Current Liabilities d) $36,000 $23,000 Ratio 1.57 Current liabilities Accounts payables $7,000 $10,000 $6,000 $23,000 Wages payable Income tax payable Total Current Liabilities Operating cash flow to Capital expenditures ratio Operating cash flow Capital expenditure e) $36,000 $17,000 2.12 Ratio Working notes: Cash received from customers $645,000 Sales -$9,000 $636,000 Less: Increase in Accounts receivable Net cash received from customers Cash paid to suppliers $430,000 Cost of Goods sold $25,000 Add: Increase in inventory $455,000 cost of purchase cost of purchase Add: Decrease in payable $455,000 $3,000 $458,000 Net payment to suppliers Cash Paid to Employees $91,000 Wages expense Less: Increase in wages payable Net cash paid to Employees -$4,000 $87,000 Cash Paid for Insurance D $12,000 -$2,000 $10,000 Insurance expense Less: Decrease in prepaid insurance Net cash paid to Employees Cash paid for Income tax $29,000 Income tax $1,000 Add: Decrease in income tax payable cash paid for income tax $30,000