Question

ws (Indirect Method) The Wolf Company's income statement of Cash Flows ve balance sheets at Dec nt ember 31 of 2016 and 2015 are shown below: income statement and com LO2,3 WOLFF COMPANY Income Statement the Year Ended December 31,2016 Sales revenue Cost of goods sold Wages expense Insurance expense. 86,000 12,000 13,000 12,000 ncome tax expense Net income. 29,000 582,000 63,000 WOLFF COMPANY Balance Sheets Dec. 31, Dec. 31, 2015 s 52,000 8,.000 Accounts receivable Prepaid insurance?.. , " Plant assets 90,000 60,000 7,000 219,000 195,000 .. $339,000 $247,000 Total assets Liabilities and Stockholders' Equity Wages payable Bonds payable Retained eanings.. Total liabilities and stockholders' equity 7000 $ 10.000 6,000 7,000 000 75,000 9,000 6,000 90,000 90,000 59,000 $339,000 $247.000 . . .. nt assets were purchased for cash and bonds payable were issued for cash. Bond interest is paid semi-annually on June 30 and December 31. Cash dividend s of S36,000 were declared and paid during 2016. Pla Accounts payable relate to merchandise purchases. Required d Calculate the change in cash that occurred during 2016 c. Compute free cash flow Prepare a statement of cash flows using the indirect method. compute the operating-cash-flow-to-current-liabilities ratio. compute the operating-cash-flow-to-capital-expenditures ratio

Answer 1

PART-1)

Change in Cash during 2016 $44,000 increase

PART-2)

Cash Flow Provided by Operating Activities			Working
Net income		63,000
Add/Minus
Depreciation		13,000
Accounts Receivable	Increase	-9,000	32,000 - 41,000
Inventory	Increase	-30,000	30,000 - 60,000
Prepaid Insurance	Decrease	2,000	7,000 - 5,000
Accounts Payable	Decrease	-3,000	7,000 - 10,000
Wage expense	Increase	3,000	9,000 - 6,000
Income Tax Payable	Decrease	-1,000	6,000 - 7,000
Cash Flow Provided by Operating Activities		38,000
Cash Flow from Investing Activities
Purchase of Plant Assets		24,000	195000-219000=-24000
Cash Flow from Financing Activities
Issuance of Bonds Payable		66,000	141,000-75,000=66000
Payment of Dividends		-36,000
Cash Flow from Financing Activities		30,000
Net increase in cash		44,000	38,000-24,000+30,000
Cash at Beginning of Year		8,000
Cash at End of Year		52,000

PART-3)

Free cash flow $ -14,000

Working: Operating cash flow - Purchase of asset = 38,000 - 24,000 = 14,000

PART-4)

Operating-cash-flow-to-current-liabilities ratio : 1.69

Working:

operating cash flow/Average current liabilities

=38,000 / {(7000+10000+9000+6000+6000+7000)/2}

=38,000 / 22,500

=1.69

PART-5)

Operating-cash-flow-to-capital-expenditures ratio : 1.58

Working:

Operating-cash-flow / Capital-expenditures = 38,000 / 24,000 = 1.58