Presented on page 538 are the comparative balance sheets for Nicolas Cage Company at December 31.

Additional information: 1. Operating expenses include depreciation expense of \($70,000\) and charges from pre- paid expenses of \($4,400\). 2. Land was sold for cash at cost. 3. Cash dividends of \($79,290\) were paid. 4. Net income for 2002 was \($26,890\). 5. Equipment was purchased for \($65,000\) cash. In addition, equipment costing \($40,000\) with a book value of \($13,000\) was sold for \($14,000\) cash. 6. Bonds were converted at face value by issuing 30,000 shares of \($1\) par value common stock. 7. Net sales in 2002 were $367,000.

Instructions

(a) Prepare a statement of cash flows for 2002 using the indirect method.

(b) Compute the following cash-basis ratios for 2002. (1) Current cash debt coverage ratio. (2) Cash return on sales ratio. (3) Cash debt coverage ratio. (4) Free cash flow.

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NICOLAS CAGE COMPANY Comparative Balance Sheets December 31 Assets 2002 Cash $ 45,000 Accounts receivable 72,000 Inventory 132,000 2001 $ 57,000 64,000 140,000 Prepaid expenses 12,140 16,540 Land 125,000 150,000 Equipment 200,000 175,000 Accumulated depreciation-equipment (60,000) (42,000) Building 250,000 250,000 Accumulated depreciation-building (75,000) (50,000) $701,140 $760,540 Liabilities and Stockholders' Equity Accounts payable $ 38,000 Bonds payable 235,000 $ 45,000 265,000 Common stock, $1 par 280,000 250,000 Retained earnings 148,140 200,540 $701,140 $760,540