Question

3. Marcus Industries had the balance sheet shown below at December 31, 2019. MARCUS INDUSTRIES BALANCE SHEET DECEMBER 31, 2019 Cash $ 31,000 Accounts receivable 56,800 Accounts payable $ 61,000 Investments 86,000 Notes payable (long-term) 76,000 Plant assets (net) 138,500 Common stock 200,000 Land 66,000 Retained earnings 41,300 $378,300 $378,300 During 2020, the following occurred: 1. Marcus Industries sold part of its investment portfolio for $20,000. This transaction resulted in a loss of $2,100 for the firm. The company classifies its investments as available for sale. 2. A tract of land was purchased for $25,000 cash. 3. Long-term notes payable in the amount of $30,000 were retired before maturity by paying $30,000 cash. 4. An additional $43,000 in common stock was issued at par. 5. Dividends of $20,000 were declared and paid to stockholders. 6. Net income for 2020 was $21,000 after allowing for depreciation of $9,000. 7. Land was purchased through the issuance of $61,000 in bonds payable. 8. At December 31, 2020, Cash was $46,100, Accounts Receivable was $61,800, and Accounts Payable remained at $61,000. Required (a) Prepare a statement of cash flows for 2020. (b) Prepare an unclassified balance sheet as it would appear at December 31, 2020. How might the statement of cash flows help the user of the financial statements? Compute two cash flow ratios.

Answer 1

a)
Murcus Industries
Statement of Cash Flows
For the Year Ended December 31, 2019
Cash flows from operating activities:
Net income	$21,000.00
Adjustments for noncash effects:
Depreciation expense	$9,000.00
Loss on sale of investments	$2,100.00
Increase in accounts receivable (61800 - 56800)	($5,000.00)
Net cash flows from operating activities		$27,100.00
Cash flows from investing activities:
Sale of investment	$20,000.00
Purchase of Land	($25,000.00)
Net cash flows from investing activities		($5,000.00)
Cash flows from financing activities:
Payment of Notes payable	($30,000.00)
Payment of cash dividends	($20,000.00)
Issuance of common stock	$43,000.00
Net cash flows from financing activities		($7,000.00)
Net increase in cash		$15,100.00
Cash balance, January 1		$31,000.00
Cash balance, December 31		$46,100.00
b)
Murcus Industries
Balance shheet
31-Dec-20
Assets		Liabilities
Cash	$       46,100.00	Accounts Payable	$   61,000.00
Accounts Receivables	$       61,800.00	Bonds  payable	$   61,000.00
Investments (56800-20000-2100)	$       63,900.00	Notes payable (76000 - 30000)	$   46,000.00
Plant Assets(Net)	$     129,500.00	Common stock (200,000 + 43000)	$ 243,000.00
Land (66000 + 25000+61000)	$     152,000.00	Retained Earnings (41300+21000-20000 + )	$   42,300.00
Total Assets	$     453,300.00	Total liabilities and shareholder equity	$ 453,300.00
c)
The statement of cash flow helps users in the following way:
1)Predict future cash flows
2) Evaluate management decisions.
3) Predict ability to pay debts and dividends.
Ratio:
Cash flow coverage ratio =  operating cash flows / total liabilities
Cash flow coverage ratio =  27100/(61000+61000+46000)	0.161
Current liability coverage ratio =  cash flows from operations / current liabilities
Current liability coverage ratio = 27100/ 61000	0.444

B D А 2 Murcus Industries 3 Statement of Cash Flows 4 For the Year Ended December 31, 2019 5 Cash flows from operating activities: 6 Net income $21,000.00 7 Adjustments for noncash effects: 8 Depreciation expense $9,000.00 9 Loss on sale of investments $2,100.00 10 Increase in accounts receivable (61800 - 56800) ($5,000.00) 11 Net cash flows from operating activities $27,100.00 12 Cash flows from investing activities: 13 Sale of investment $20,000.00 14 Purchase of Land ($25,000.00) 15 Net cash flows from investing activities ($5,000.00) 16 Cash flows from financing activities: 17 Payment of Notes payable ($30,000.00) 18 Payment of cash dividends ($20,000.00) 19 Issuance of common stock $43,000.00 20 Net cash flows from financing activities ($7,000.00) 21 Net increase in cash $15,100.00 22 Cash balance, January 1 $31,000.00 23 Cash balance, December 31 $46,100.00 24 25b) 26 Murcus Industries 27 Balance shheet 28 31-Dec-20 29 Assets Liabilities 30 iCash $ 46,100.00 Accounts Payable 31 Accounts Receivables $ 61,800.00 Bonds payable 32 Investments (56800-20000-2100) $ 63,900.00 Notes payable (76000 - 30000) 33 Plant Assets(Net) $ 129,500.00 Common stock (200,000 + 43000) 34 Land (66000 + 25000+61000) $ 152,000.00 Retained Earnings (41300+21000-20000 + ) 35 Total Assets $ 453,300.00 Total liabilities and shareholder equity 36 37 ) 38 The statement of cash flow helps users in the following way: 39 (1) Predict future cash flows 40 2) Evaluate management decisions. 41 3) Predict ability to pay debts and dividends. 42 Ratio: 43 Cash flow coverage ratio = operating cash flows / total liabilities 44 Cash flow coverage ratio = 27100/(61000+61000+46000) 0.161 45 Current liability coverage ratio = cash flows from operations / current liabilities 46 Current liability coverage ratio = 27100/ 61000 0.444 $ 61,000.00! $ 61,000.00 i $ 46,000.00 $ 243,000.00 $ 42,300.00 $ 453,300.00