$330,000 Evangel Inn Statement of Cash Flows For the year 20X7 Cash Flow Provided by Operating Activities: Net Income Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities: Depreciation expense $340,000 Amortization expense 10,000 Gain on sale of equipment (20,000) Loss on sale of investments 50,000 Increase in accounts receivable (25,000) Increase in inventory Decrease in prepaid expenses 10,000 Increase in accounts payable 10,000 (5,000) 370,000 Ratio Analysis 293 Net Cash Flows from Operating Activities: 700,000 Cash Flow Provided by Investing Activities: Proceeds from sale of equipment Proceeds from sale of investments 80,000 Purchase of marketable securities 50,000 Purchase of equipment (5,000) Purchase of investments (210,000) (400,000) Net Cash Flows from Investing Activities: (485.000) Cash Flow Provided by Financing Activities: Payment of long-term debt (50,000) Borrowing-long-term debt 200,000 Purchase of treasury stock (140,000) Proceeds from sale of common stock 25,000 Payment of dividends (210,000) Net Cash Flows from Financing Activities: (175,000) Increase in Cash 40,000 Cash at the beginning of 20X7 20,000 Cash at the end of 20X7 $ 60,000 Supplementary Schedule of Noncash Investing and Financing Activities Exchange of Common Stock for Long-Term Debt Supplementary Disclosure of Cash Flow Information Cash paid during the year for Interest 100,000 Income Taxes 80,000 Required: Compute the following ratios for the Evangel Inn: 1. Current ratio for 20X6 and 20X7 2 Acid-test ratio for 20X6 and 20X7 3. Accounts receivable turnover for 20X7 4. Return on assets for 20x7 5. Return on owners' equity for 20x7 6. Labor cost percentage for 20x7 7. Average tax rate for 20X7 8. Solvency ratio for 20X6 and 20X7 9. Operating cash flows to total liabilities ratio for 20x7 10. Operating cash flows to current liabilities for 20X7 11. Profit margin for 20X7 Problem 20 Some of the Evangel Inn's financial statements from 20x6 and 20X7 are as follows: Evangel Inn Balance Sheets December 31, 20X6 and 20X7 Assets 20X6 20X7 Current Assets Cash $ 20,000 60,000 Marketable Securities 20,000 25,000 Accounts Receivable 90,000 115,000 Inventory 15,000 20,000 Prepaid Expenses 15,000 5,000 Total Current Assets 160,000 225,000 Investments 150,000 450,000 Property and Equipment: Land 450,000 450,000 Buildings 2,000,000 2,000,000 Equipment 500,000 610,000 Less: Accumulated Depreciation (1,000,000) (1,300,000) Net Property and Equipment 1,950,000 1,760,000 Other Assets - Franchise Fees 100,000 90,000 Total Assets $ 2,360,000 $ 2,525,000 Liabilities and Owners' Equity Current Liabilities: Accounts Payable $ 25,000 35,000 Current Maturities of Long-Term Debt 50,000 50,000 Wages Payable 15,000 15,000 Dividends Payable 20,000 15,000 Total Current Liabilities 110,000 115,000 Long-Term Debt 1,000,000 1,050,000 Owner's Equity: Common Stock 1,160,000 1,285,000 Retained Earnings 100,000 225,000 Less: Treasury Stock (10,000) (150,000) Total Owners' Equity 1,250,000 1,360,000 Total Liabilities and Owners' Equity $2,360,000 $2,525,000 Evangel Inn Condensed Income Statement For the year ended 20X7 Revenues $2,700,000 Sales 80,000 Interest Income 2,780,000 Total Revenues Expenses 750,000 Salaries and Wages 340,000 Depreciation 10,000 Amortization (franchise fees) 100,000 Interest Expense 1,140,000 Other Expenses 440,000 Income Before Gains and Losses and Income Taxes 20,000 Gain on Sale of Equipment (50,000) Loss on Sale of Investments 80,000 Income Taxes 330,000 Net Income Additional information: 1. Equipment costing $100,000 was sold for $80,000 during 20x7. 2. Investments costing $100,000 were sold during 20x7 for a loss of $50,000. 3. Dividends of $205,000 were declared during 20x7. 4. Treasury stock of $140,000 was purchased during 20x7. 5. Long-term debt of $100,000 was converted to common stock during 20x7. 6. Common stock of $35,000 was sold during 20x7. 7. Long-term debt of $200,000 was borrowed during 20x7. 8. Marketable securities of $5,000 were purchased during 20x7. Evangel Inn Statement of Cash Flows For the year 20X7 Cash Flow Provided by Operating Activities: Net Income $330,000 Adjustments to Reconcile Net Income to Net Cash Flows Provided by Operating Activities: Depreciation expense $340,000 Amortization expense 10,000 Gain on sale of equipment (20,000) Loss on sale of investments 50,000 Increase in accounts receivable (25,000) Increase in inventory (5,000) Decrease in prepaid expenses 10,000 Increase in accounts payable 10,000 370,000